GREEN DEALS: Wind is a gas

Did gas company APA buy the wind assets of the failed Griffin Group because it was a bargain deal, or because it has a grand strategic plan? Some analysts are scratching their heads after the listed AP agreed to pay $171 million for the 80MW Emu Downs wind farm, and development rights to an adjacent 130MW development. At a price of $2.2 million per MW, analysts say that the purchase price was below the original cost of development, and the asset has a guaranteed revenue stream for the 20 years remaining on its operating life.

APA says Emu Downs has predictable cash flow and will allow it to leverage off its existing gas assets in the area. “It’s a renewable energy project located in an area with a high yielding and predictable wind resource,” the company said in a statement. “It’s ideally located to complement and enhance APA’s gas infrastructure assets in the Perth region which can be used for back-up gas-fired electricity generation.”

However, Deutsche Bank analysts said they could not understand the strategy. “While we see Emu Downs as a strong asset acquired at a reasonable price, we struggle with APA’s explanation of the transaction’s strategic rationale,” they wrote in a report. “When pressed on the strategic rationale for owning the wind farm, APA pointed to the potential to provide gas transmission and storage services to a gas fired peaking station to support wind generation.

“We recognise incremental wind generation can require peaking generation backup when the wind doesn’t blow, however we struggle to understand why APA needs to own Emu Downs in order to be the provider of gas storage and transmission services to a proposed gas fired peaking power station. We can only conclude … (it) is part of a larger transaction that the company is yet to complete.The company pointed to improved demand prospects for its gas storage and transmission services from gas fired generation, however we struggle to see why APA needs to own a wind farm in order to promote incremental gas generation.”

Solar strategies

Australia’s solar industry peak bodies met in the NSW state parliament on Thursday, formulating policy measures that could take the state’s solar industry forward after the abolition of the solar bonus scheme. Among the suggestions was a push for dollar-for-dollar metering, but with a mechanism that allows energy retailers to defray the costs of accommodating solar PV in the network. The industry suggests that this could include a higher network charge on the bills of residences that have solar PV installed to reflect that cost, while allowing net metering that recognises equal value to the electricity either consumed inside the house or exported to the grid.

The Australian Solar Energy Society and the Solar Energy Industries Association also want the dollar-for-dollar net metering concept to be extended to commercial-scale solar – up to around 200kW capacity. AuSES CEO John Grimes says they would also be calling on the federal government to provide accelerated depreciation for commercial-scale solar PV installations. He said these two measures would help deliver returns of around 17 per cent, which is what is estimated to encourage the development of commercial solar on warehouse rooftops and the like, which many believe to be the great untapped resource in Australia. These measures will be put to the solar summit to be held next Friday by the NSW government.

A capital idea

Meanwhile, observers of renewable energy policy in Australia would be interested to know that US power producer NRG has received a loan guarantee from the Energy Department to roll out 733MW of solar PV on warehouse rooftops owned by Prologis across 28 states. The commitment guarantees 80 per cent of a $1.4 billion loan being provided by Bank of America to the $2.5 billion project, which will effectively double the amount of rooftop solar installed in the US. Bank of America told Bloomberg that the scale of the project, and the loan guarantee, would be a “game changer” for the US solar industry.  “It’s a big step forward for solar energy and one that we think is going to transform the way that rooftop solar works in this country.” NRG and Prologis will both invest equity in the project.

Munich Re looks for green returns

Munich Re, the world’s biggest reinsurer, says it plans to invest $3.5 billion over the next five years in renewable energy projects to help boost its investment returns. In an interview with Bloomberg, board member Thomas Blunck, who has responsibility for special and financial risks, said renewable energy projects were attractive because they offer predictable, long term cash flows. Munich Re to date has invested little in renewable energy, with a $60 million investment in a German wind farm at the beginning of this year its only investment to date.

Blunck said the company was close to signing two more projects and more were lined up for evaluation. Munich Re had total investments of around $280 billion, but expects overall returns of just under 4 per cent this year. Bloomberg said Allianz, the biggest insurer in Europe, also aims to increase its investments in renewable energy, and will target an internal rate of return of 7 percent to 8 percent from renewable energy investment. Munich Re also offers performance guarantees for wind turbines and solar PV panels, as well as coverage of exploration risks of geothermal energy drilling. It also provides insurance for wind and solar parks that compensate for reduced earnings when weather conditions fail to produce enough power.

A Green investment rush

Munich Re is not the only one turning its focus to green investments. Just in the last two days, George Soros, has announced a $25 million investment in a new energy efficiency start-up, along with Google. Meanwhile, Google and Citi have invested another $204 million in the 1550MW Alta wind farm – the largest in the US - and GE announced it had invested $60 million in 10 solar and energy efficiency start-ups. Standard Chartered also said it expects to track to mobilise between $10 billion and $12 billion of financing for the renewable energy market over the five years to the end of 2012.