July 2018

New Energy spurs solar transactions

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At the beginning of the year we flagged M&A as a key topic for the Australian renewables sector in 2018. In truth, since the opening months of the year, activity has been more muted than we anticipated. Some small deals may have flown under the radar, but for the larger assets, buyers may have been waiting for developments from wholesale electricity and LGC prices, for which the forward curves have fallen dramatically.

However, June has seen a number of deals that make it the most active month since January in terms of capacity changing hands. Macquarie Capital sold down its holding in Lal Lal wind farm in two separate transactions, while the University of Queensland entered the solar ownership business by agreeing to buy Warwick solar farm from Terrain Solar.

One deal this week for a high-profile project stands out in particular and may mark a resurgence of interest in solar M&A. On June 25, New Energy Solar, an Australian-based renewable energy investment manager, announced it had purchased the Manildra solar farm from First Solar, a US panel manufacturer and developer.


Manildra is a 46.7 MW AC project in New South Wales, which has been connected to the grid and is currently in the commissioning phase. This is not the first time it has changed hands: First Solar purchased the project from ASX-listed Infigen Energy towards the end of 2016 and developed the project with the help of an ARENA grant. First Solar also secured a 13-year power purchase agreement (PPA) with EnergyAustralia for all output from Manildra.

New Energy Solar has used an enterprise value of approximately A$113 million as a basis for the transaction; this is its estimate of the value of the project to both equity and debt holders. The actual value of the deal was not disclosed, but we understand that New Energy Solar has kept the project finance facility, so the amount paid for Manildra will be considerably less than this.

Performing a detailed comparative valuation is difficult in the absence of full details. Key drivers of value at this stage in the project’s life are the price and tenor of the project finance facility, and of course the discount rate used to value equity (or the buyer’s targeted rate of return). But at first glance this looks like a mutually beneficial transaction for both buyer and seller. This is New Energy Solar’s first foray into the Australian sector: despite being headquartered and listed in Sydney, the company’s portfolio to date has consisted entirely of US solar assets. As a way into the local market, Maildra appears a good option. It is effectively operating and therefore cash-flow generating immediately for the new owner. And New Energy Solar’s estimate of enterprise value is on a par with our own view on the combined value of the project’s equity and debt.

For First Solar, the deal allows it to realise value from the project within a very short time frame, with a return boosted by some grant funding. And the sale provides welcome capital to help develop new projects in their Australian pipeline, of which there are several.


Manildra is a great example of how economics have changed considerably for Australian solar projects. It was developed with an ARENA grant, something that is no longer necessary for dedicated solar facilities. And we estimate an average PPA price in the mid A$80s per megawatt hour, considerably higher than we anticipate for projects being constructed today.

But given that construction capital has been spent and the asset is about to be commissioned, it makes a great entry point for a new investor. This strategy plays to buyers who may not want to take on development risk but who like stable long-term returns.

We have been waiting for New Energy Solar’s entry into the Australian market, and this move suggests the local market is becoming more attractive and will become more competitive. With several recent deals occurring at the late-construction and operating stages, the Manildra deal may add more weight to the argument that a flurry of transactions will take place once the current abundance of projects under construction become operational.