The $617 million acquisition of ERM Power by Shell may be the start of a spending spree in Australia by large multinationals in the energy space, with some examining various solar farm and wind farm sites over recent months.
The developments are attracting global companies such as Shell because they are considered the only businesses that can handle the risky nature of the projects and are eager to gain exposure to clean energy assets.
Shell is known to have been scanning the Australian market for downstream energy opportunities for some time and ERM was tipped as a target for the oil and gas giant by this column in June.
Some have pointed to the $483m listed Infigen Energy as a possible target, although others say Shell could expand its presence in Australia organically, using the ERM platform.
Infigen develops, owns and operates renewable energy generation assets in Australia and all are eligible to sell Large-scale Generation Certificates under the mandatory Renewable Energy Target scheme.
It has five operating wind farms across Australia and four wind farm developments.
Another possibility earlier touted was that Shell could look at Origin Energy’s retail markets business should it embark on a spin-off of its upstream gas assets.
However, Origin Energy delivered a strong result yesterday that shows both its energy retail and upstream oil and gas operations provide a good hedge for each other.
Momentum Energy, which is wholly owned by Hydro Tasmania, has also been identified as a possible target.
When it comes to acquisitions, Shell is said to be focused on how it can integrate assets with its global gas business.
The other big driver is that it has a desire to invest in the clean energy space.
However, the challenge with respect to Australia is finding environmentally friendly energy takeover targets, given that most of the country’s power generation comes from coal.
Shell’s global head of LNG was understood to have been in Australia this year, thought to be scanning the market for opportunities, which included ERM.
ERM is the only energy retailer licensed to sell electricity for small business in all Australian states and since launching in 2007 by Trevor St Baker, it has grown to be the fourth-largest seller of electricity in the nation.
It buys most of its energy through trading contracts, which is an area of expertise for Shell.
Shell is active in every area of the oil and gas sector, including exploration, production and distribution, petrochemicals, power generation and trading.
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