Spark eyes higher TransGrid stake

Rick Francis says Spark will consider any deal, as speculation grows over a potential transaction worth up to $2bn.

Electricity network owner Spark Infrastructure said it will consider boosting its stake in NSW transmission business TransGrid, amid speculation the Kuwait Investment Authority plans to sell its holding.

Spark is believed to be preparing to call in Macquarie, according to The Australia’s DataRoom column, for a potential $2bn deal to increase its 15 per cent stake in TransGrid.

The Kuwait Investment Authority’s Wren House holds 20 per cent of TransGrid but is selling out of the network business with existing shareholders holding first option to strike a deal under pre-emption rights.

Spark chief executive Rick Francis said it would consider any deal.

“If there was a further stake available then we would look at it like any other investment decision and go through that process and evaluate it against our risk adjusted investment criteria,” Mr Francis told The Australian after reporting its results. “We have an important stake in TransGrid and we really value that and appreciate that.”

Spark highlighted that more than $10bn of electricity infrastructure projects will likely be needed under the Australian Energy Market Operator’s integrated system plan, providing a raft of growth options for TransGrid in the decade ahead.

The consortium paid $10.3bn to buy TransGrid as part of a major privatisation drive by the state government with major infrastructure including Ausgrid and a half stake in WestConnex sold as part of an asset recycling scheme.

Spark owns stakes in $17bn of network assets across three states, including distribution in South Australia, western Victoria and the Melbourne CBD as well as NSW transmission business TransGrid.

It delivered a 4 per cent lift in annual adjusted earnings to $859.1m on Tuesday, ahead of market expectations, and a dividend of 15c per security as per its guidance.

The company said its Bomen solar farm near Wagga Wagga in NSW had been built and would likely start on time in the second quarter of 2020, avoiding headaches experienced by renewable developers in northwest Victoria.

The Australian Energy Market Operator has put limits on five solar farms, citing concerns over voltage issues hitting the power grid in a so-called “corridor of uncertainty” in the sector.

Mr Francis said Spark undertook a thorough assessment of network issues and marginal loss factors when it committed to Bomen last year.

“AEMO has to have the whole system wide network as its first call as it can’t risk any meltdowns in location because of the ramifications it has on the entire grid. So it has to be very conservative and diligent in that regard,” Mr Francis said.

The fallout from the solar slowdown was top of mind for renewable investors and developers.

“I do have some sympathy for some of those owners. It’s been a gold-rush to try and state your claims to various sites and a race to get your renewable generation in place and grab the available capacity in the network for yourself,” Mr Francis said. “But that’s not the way our network works. Subsequent investment and connection into the grid has a cascading marginal loss factor right across the grid which I’m not sure was fully appreciated.”

Renewables spending slowed dramatically last year partly because sections of the nation’s stretched power grid are struggling to handle major new renewable generation sources in areas without sufficient transmission capacity.

Bottlenecks in the electricity system have led to some developers receiving up to a quarter less revenue than anticipated under the marginal loss factor mechanism which calculates the difference between the amount of power generated and lost during the transmission process.

Spark shares rose 1.5 per cent on Tuesday to $2.09.