Regulatory and market hurdles curtailing renewables investment, says Spark Infrastructure
Spark Infrastructure says the outlook for renewables investment has soured amid regulatory and market hurdles.
Electricity network investor Spark Infrastructure says the outlook for renewables investment has soured amid regulatory and market hurdles, at a time when major spending is needed to aid the transition.
The number of large-scale renewable projects committed in the second quarter of 2020 was the lowest since 2017, with just three facilities reaching financial close, data from the Clean Energy Council shows.
Spark entered the market in 2019 after acquiring the Bomen solar farm near Wagga Wagga in NSW, which has started commercial operations, but said it was treading carefully in terms of new clean energy opportunities. Solar and wind have also been curtailed in parts of the power grid, adding to uncertainty over revenues and the outlook for sanctioning new developments.
“The market is uncertain and particularly the curtailment issues have reared their ugly heads again,” Spark chief executive Rick Francis said after releasing its first-half results on Tuesday. “So if you look back six to nine months the five solar farms in northwest Victoria had big curtailment issues there of about 50 per cent. And we’ve seen curtailment come back on the table as a key risk.
“We’re very keen on the market but we’re treading carefully in looking for the right opportunities and it’s obviously a mix of characteristics but very importantly it comes down to location.”
The clampdown follows the Australian Energy Market Operator imposing tougher rules on connecting to the grid and a reduction in so-called marginal loss factors — which determine the prices generators get for their power — which has diminished returns for many renewable operators along with price volatility in the market.
Spark also said it may consider a selldown of its stake in TransGrid as the NSW transmission operator weighs up a $13bn pipeline of projects out to 2040 from the power grid’s transition to renewables.
Spark in May had voiced frustration the market had undervalued its existing 15 per cent holding in TransGrid as a prime reason for deciding not to buy an extra 20 per cent stake that was subsequently snapped up by Canadian pension giant OMERS after Kuwait’s Wren House exited.
TransGrid has $12.9bn in potential investment opportunities spanning the $2bn EnergyConnect transmission line through NSW, South Australia and Victoria and the $2.1bn HumeLink in NSW. Spark said TransGrid’s investment pipeline could double its regulated asset based this decade, but also noted it was not tied to the asset when asked by an analyst if it would sell down given the need to keep cash in the business.
“We’re not averse to recycling assets where we can do that for good additional value,” Mr Francis said. “Certainly we would consider recycling but we’d obviously have to have a purpose to put that cash to use. Whether that was returning it to shareholders or opportunities elsewhere.”
TransGrid is owned by a consortium comprised of Spark Infrastructure, Utilities Trust of Australia, Canada’s CDPQ, Tawreed Investments and now OMERS.
Spark record a 3.6 per cent lift in proportionate earnings to $439m, some 4 per cent ahead of an Ord Minnett forecast, and will pay an interim dividend of 7c per share.
The company’s shares rose 0.9 per cent to $2.23 on Tuesday.