Shell hikes renewables clout with giant wind farm deal via a 49 per cent stake in WestWind

Shell has cautioned replacement generation must be in place before coal exits the power system, and underscored its own renewables ambition through a major wind farm deal.

Shell has gained exposure to a 3 gigawatt pipeline of wind farm generation through its deal with WestWind Picture: Andy Rogers

Shell has cautioned replacement generation must be in place before coal exits the power system, as the energy giant underscored its own renewables ambition through a big wind farm deal that boosts its plans to challenge Australia’s big three retailers.

Shell has bought a 49 per cent stake in WestWind Energy Development, handing the company its first exposure to wind power in Australia along with a 3-gigawatt project pipeline across Victoria, NSW and Queensland.

The British oil and gas company is undertaking a long-term pivot to become a major operator in electricity markets in a move that has seen it linked as a potential buyer of AGL Energy, which just rejected a $8bn takeover bid from a consortium fronted by Mike Cannon-Brookes.

But the move to scoop up another smaller bolt-on deal, following stakes in solar power developer Esco Pacific and the buyout of Trevor St Baker’s ERM Power, suggests Shell may avoid embarking on a big-bang deal.

Shell Australia chairman Tony Nunan declined to comment on speculation linking it with AGL.

“What you see in Australia is that we felt the portfolio that we’ve developed here has come together really well to deliver our strategy,” Mr Nunan told The Australian.

“So each individual component of it wasn’t bought just because it was an individual company. Each part of it was acquired to build on a strategy that gives a greater offering to our customers. So we’ve done it with the intention of having a portfolio of options.”

The WestWind deal also strengthens its clout in playing a major role for adding new renewables generation to the national electricity market. The faster than expected exit of coal from the grid, a centrepiece of Mr Cannon-Brookes’s AGL bid and underlined by Origin Energy’s early Eraring plant exit, has sparked a fresh debate as to whether the power system will face greater volatility once the fossil fuel departs.

Shell Australia chairman Tony Nunan. Picture: Mark Cranitch.

Mr Nunan said he was cautious about coal being shut down before sufficient replacement capacity was in place given the fuel still provided up to 70 per cent of the system’s capacity.

“Our feeling is that the more that we have the clear signals on when coal will come out, and we’ve seen that recently with the Origin announcement, that sends a signal to the supply side to say what additional demand do we need to meet and that’s a good thing for the market,” Mr Nunan said. “I think an orderly transition requires processes like that, where we identify when capacity will come out of the market.

“We should make sure that any decisions that are taken have that in mind and that we’re able to meet any change in supply over time, with additional supply coming in. And that’s a really, really important part here because our customers expect that and they should receive that.”

The WestWind deal does not include the clean energy developer’s existing 2GW of projects such as Lal Lal and the Golden Plains wind farm but includes the entire 3GW pipeline of wind generation.

Australia has been identified as one of six target markets where Shell will look to create a fully ­integrated electricity supply business with the potential to scoop up a “mass market” customer base through dealmaking.

AGL, Origin and EnergyAustralia hold large retail market shares in many states and control more than 60 per cent of capacity in NSW, Victoria and South Australia, but the sector has faced a tough few years amid low wholesale power prices and a flood of renewable generation hitting the market.

The List: 100 Green Power Players

Shell in November paid $729m to scoop up Meridian’s highly prized retail business, Powershop Australia, which delivers electricity to 140,000 customers and gas to 40,000 accounts.

The multinational said its power business will achieve equity ­returns of 8-12 per cent, compared with 12-15 per cent for its legacy oil and gas business.

Shell is one of the dominant players in Australia’s booming energy sector, operating the QCLNG export plant in Queensland and the Prelude floating LNG project off northern Australia along with stakes in Western Australia’s North West Shelf, Gorgon and Browse LNG ventures and gas business Arrow.