Following the surge in solar construction activity in 2017 and the first half of 2018, we felt the Australian renewables sector was due for a slow-down in activity. With an unprecedented volume of utility-scale capacity under construction across the country, the sector is facing a fair share of challenges including commissioning delays, cost overruns and unfavourable federal energy policy.
October has shown that the sector soldiers on. Three remarkable solar projects reached financial close and began construction this month. All three are on a scale never before seen in Australia, and have shaken up both our ownership and EPC rankings.
At 313 MW AC, and 349 MW DC, Limondale in New South Wales is the largest of the three, and will become Australia’s biggest solar farm. It is owned by German utility innogy, a subsidiary of RWE, which purchased the project from Australian developer Overland Sun Farming in February 2018. This is innogy’s first foray into the Australian renewables market, and it is certainly making a big entrance.
The project currently has no power purchase agreements (PPAs) associated with it, so it appears the electricity will likely be sold on a merchant basis. However, we will not be surprised to see one or more PPAs arranged for Limondale during the construction phase (which we expect will take at least two years).
Also in New South Wales, and just a stone’s throw from Limondale, the 200 MW AC, 255 MW DC Sunraysia project will become the state’s second-largest solar farm. It is majority owned by British infrastructure investment group John Laing, with a minority stake retained by the developer Maoneng.
The project has two PPAs, one with major energy generator and retailer AGL, and the second with the University of New South Wales.
The third mega project,Total Eren’s Kiamal in Victoria, has two stages, the first of which is 200 MW AC and 256.5 MW DC. It is the first investment in Australia by the joint venture between French oil and gas major, and Greek renewable development company. It also marks by far the most advanced development by an oil and gas company in Australian renewables. In what has become an emerging trend, Kiamal has a variety of associated PPAs: one with Mars, and two with retailers Flow Power and Alinta Energy.
The projects become the three largest solar projects under construction, and all make the top 15 renewable projects operating or under construction when we include wind.
The scale of the projects creates significant impacts on the ownership structure of the solar sector in Australia. Innogy becomes the third-largest owner of utility-solar capacity when we consider current operations and projects under construction. Total Eren vaults into fifth place in our ownership rankings, and John Laing enters our solar ownership rankings for operations and projects under construction in seventh, as the 90.1% owner of Sunraysia.
After several years of talking about 200 MW+ solar projects in Australia, the moment is finally here: construction has started, and not just on one mega project, but three simultaneously. The three assets featured in this analysis have a combined AC capacity of 713 MW, which is very close to the total combined capacity of all operating utility scale solar in Australia today.
It represents a step change in the evolution of the Australian solar sector. Developers are willing to pursue major projects despite the risks in the current environment, in some instances on a merchant basis, and construction companies are stepping up to take on jobs that are more than double their previous deliveries.
Will the trend continue? We expect the appetite for corporate renewable PPAs to grow, and costs certainly appear favourable. If the first three mega projects progress smoothly, there is no shortage of projects at a similar size or bigger that are just waiting for finance. And it will only take one to shake the solar sector up once again.