Investor plots renewables re-entry after Tilt windfall

Morrison & Co is planning its re-entry into the Australian solar and wind market but it remains cautious on risks.

Tilt Renewables' Dundonnell wind farm.

The $22bn investment manager Morrison & Co is planning its re-entry into the Australian solar and wind market, revealing a decision to sell Tilt Renewables last year for $3bn was influenced by volatility and grid issues that had hiked the risks of operating in Australia.

“We saw there was quite a bit of froth in the market at the time. And we did see more risk in the Australian market at that point in time then we did see in other markets, particularly around the power grid and so for us it was an opportune time to exit the market,” Vimal Vallabh, Morrison & Co’s global head of energy, told The Weekend Australian.

Tilt had a portfolio including 1313 megawatts across seven wind and solar farms and a further two wind farms nearly complete but Morrison & Co saw some risk as it looked to the timing of its 3500MW pipeline of projects across wind, solar, battery storage and peaking capacity.

The asset manager behind Infratil, and with clients including the Future Fund, said nations competing for renewables investment including Spain, the UK and parts of the US such as California have proved a more attractive option in recent years.

Morrison & Co global head of energy Vimal Vallabh. Picture: Supplied

“Uncertainty was probably the biggest risk. There were other markets where you get far more confidence that the government is committed to a road of deploying renewables,” said Mr Vallabh. “Part of the reason I built these other platforms globally was because of the uncertainty the Australian government was giving me to deploy capital in Australia.”

The outlook for renewable projects had improved in Australia, including under the Albanese government, but Morrison & Co still remains cautious given years of political upheaval over clean energy and climate.

“For the last few years, Australia has come out with positive signals. But it‘s about keeping those signals strong for an extended period of time. Because it’s one thing to deploy resources – being either people or capital into a market. Deploying renewables is not something we can turn on and off because it requires a sustained period of time to get your planning permissions, connection, environmental permits, resource assessments,” Mr Vallabh said.

“Even if the government turned around tomorrow and said here are our new targets, you have got to have confidence that’s going to stay in place to then build the business here in the country and employ the people because I can’t then take those people and ship them to Spain, because development is a very local game. The weight of capital in Australia relative to what we do overseas will depend on how that plays out over the coming years.”

Morrison & Co made a 40 per cent return on its investment in Tilt – sold to QIC, Future Fund and AGL Energy – but expects to start rebuilding a position through developing new solar and wind projects rather than striking deals for existing assets.

“We certainly expect our renewable platforms globally to be in the top 10 developers and in Australia I’d expect us to be in the top five.”

Rates of return vary across its portfolio although the deeper scale of international markets can offer higher value. Morrison & Co has 5 gigawatts of renewable assets either owned or under management and a 20GW development pipeline. It established Gurin Energy to target South-East Asia along with Longroad Energy in North America and Galileo Green Energy across Europe.

“You take slightly higher risk here for the same return,” Mr Vallabh said. “So your offtake contracts are far shorter than what I could get in Europe for the same return. So let’s just say it’s 8 per cent return and I’d get a 10 or maybe 12-year offtake contract here and I get 15 years in Europe for example.”