Shared from the 1/17/2019 Financial Review eEdition

Wind and solar projects to get broader sources of debt funding

Renewable energy project developers in Australia will see a bigger range of debt funding sources entering the local market this year despite uncertainty about overarching federal policy on energy and climate, according to the country’s biggest lender to the wind and solar sector.

Rob Ward, head of advisory for Japan’s MUFG Bank in Australia, said the US private placement market could emerge as a source of funding for domestic wind and solar projects just as it has for projects in Europe.

Japanese ‘‘samurai’’ loans, which were used for the first time to fund Australian wind projects last year, are also likely to find further application, while a broader range of funds in Europe and North America is also showing interest in the Australian market.

Meanwhile more Asian banks, including lenders in China, Taiwan and Korea, are coming under pressure to diversify their geographic spread.

Geoff Daley, head of the Australian structured finance office at MUFG, said investors in the renewable energy space understood energy markets and were able to live with policy uncertainty.

In any case, the Council of Australian Governments, the Energy Security Board and the Australian Energy Market Operator were getting on with what needed to be done to manage the transition toward lower-emissions energy supply and allow for the integration of more intermittent supply, he said.

‘‘Regulatory certainty doesn’t need to come, fortunately, from politicians,’’ Mr Daley told reporters in Sydney.

‘‘AEMO is doing the work. They are doing the work that needs to be done.’’

About 2.6 gigawatts of intermittent renewable-energy-generation capacity has been added in the Australian market in the past six years, with about 6.5GW under construction, according to the bank. Several more wind and solar projects are yet to reach financial close but are heading that way, backed by the Victorian government’s huge 928-megawatt renewable energy tender and by Snowy Hydro’s contracting of 888MW of new solar and wind capacity

Meanwhile, a tender for 400MW of renewable generation by Queensland’s Palaszczuk government, which would support another batch of new projects, is in the works.

At the same time, direct contracting of renewable energy by corporates, which have surged in popularity in the past two years, is expected to continue apace even as pricing of such contracts levels out after recent steep declines.

‘‘The reality is that what is driving investment in renewable energy generation is not a target; it is that the shortrun marginal cost of renewable energy is cheap,’’ Mr Daley said.

MUFG was expecting 2019 to be another ‘‘very busy’’ year in the sector, said Mr Ward. He predicted an increase in activity in the ‘‘secondary’’ market as investors that had backed early-stage development projects looked to sell to owners of more established, lower-risk projects and some investors potentially sought to pick up portfolios of generation capacity.

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