Alinta makes bet on coal with $1bn Loy Yang swoop
Alinta is betting on the long-term future of Victoria’s brown coal-fired generators, paying $1.2bn for the Loy Yang B power station.
The Chinese owners of fast growing national electricity retailer Alinta are betting on the long term future of Victoria’s brown coal-fired generators, paying an estimated $1.2bn for the Loy Yang B power station.
Backed with contracts from a number of large industrial users keen to lock in low-cost electricity Hong Kong-based Chow Tai Fook beat out another Chinese state-owned enterprise in an auction that played out against an inconclusive debate over national energy policy.
Both the buyer and seller — France’s Engie — have been influential players in the local markets with their decisions to shut the Northern and Hazelwood coal plants respectively removing base load power that has helped drive up power prices.
Alinta chief executive Jeff Dimery said the deal, foreshadhowed by The Australian’s DataRoom column, would help Alinta take the competition up to the big three retailers — AGL, Origin and Energy Australia — and underwrite its plans to develop 1000MW of new renewable generation capacity.
“As was demonstrated with Hazelwood and Northern, this is a critical piece of for making power affordable and reliable and keeping Australian industry competitive,” Mr Dimery said.
“We see it as being necessary for a good few years yet,” Mr Dimery said.
Loy Yang B has capacity of almost 1000mw and is adjacent to the 2000MW Loy Yang A station owned by AGL that is slated to close by 2050.
Alinta is a former West Australian utility that was bought by the conglomerate Chow Tai Fook earlier this year and has been expanding into the east coast as competition increases in its home market. Mr Dimery said the company was signing up around 2000 new customers a week, including a “Give them the flick” switching campaign in partnership with Queensland’s CS Energy. He said the Loy Yang A deal would provide Alinta with cheap energy for those retail and industrial customers and supplement a fleet of gas generators that already supply power the competition.
A number of large commercial and industrial customers had also signed medium-term contracts that helped the buyer raise funds for the purchase, and would be rewarded with cheap energy, Mr Dimery said.
Mr Dimery said the company was also backing the development of about 1000MW of wind and solar power that would be needed to meet renewable energy targets as it expanded its east coast retail business.
Alinta has six projects including a 200MW Yandon Wind farm north of Perth and solar farms in the iron ore province of the Pilbara, for Adani’s planned Carmichael coalmine in Queensland and at clusters in Victoria and NSW.
“If we are successful in acquiring new customers then we also acquire an obligation to supply them with a proportion of renewable energy,” Mr Dimery said. “Believe it or not, the acquisition is going to facilitate the acquisition of 1000MW of renewable energy for our portfolio.”
Alinta already has 2000MW of largely gas-fired capacity in Victoria, Queensland and Western Australia, but with much of it on the east coast contracted to competitors such as Origin Energy and Hydro Tasmania. It is estimated up to a quarter of Loy Yang’s output is also contracted to Origin and, while Mr Dimery refused to confirm the figure, he said spare capacity from the plant would become available in later years to back expansion plans.
The sale is the latest stage in French group Engie’s global exit from coal-fired generation and follows its controversial closure of the Hazelwood generator in the Latrobe Valley in March that helped fuel a surge in wholesale energy prices and destabilise an increasingly renewables-reliant national electricity market.
ITK Consulting founder David Leitch said the closure of Hazelwood and Alinta’s Northern plant in South Australia had probably made Loy Yang B more valuable by reducing supply and driving up electricity prices.
But he said Alinta was still likely to have incorporated a higher cost for coal generation and rapid advances in the competitiveness of renewable energy in its purchase plan.
Alinta’s Hong Kong owners, conglomerate Chow Tai Fook, paid a mooted $1.15 billion-$1.2bn for the Victorian brown coal-fired generator, beating out what was said to be a higher but more conditional offer of $1.3bn from China Resources.
Mr Dimery said the plant was bought by its parent to ease difficulties raising finance for coal assets, but the bulk of the energy generated would be sold to Alinta.
It had also signed medium-term contracts with a number of large industrial and commercial users.
In an auction that played out during a still undecided debate over the future of energy and environmental policy, soaring electricity prices ensured the sale drew strong interest from bidders.
A year ago, various dealmakers questioned whether the asset, adjacent to the much larger Loy Yang A generator, would attract any buyers — let along a price around $1bn.