QIC, Future Fund support AGL's Australia renewables fund

AGL launched PARF earlier this year with a goal to invest in upwards of 1,000 MW of projects with a value of A$2-3 billion. The utility will serve as manager, customers and co-investor - it is contributing A$200 million of its own capital - of the fund. Certain assets will be acquired from AGL's balance sheet, with the Nyngan and Broken Hill solar plants, which have combined installed capacity of 155 MW, likely to see the portfolio.

These projects are intended to help reach the federal government's target of having large-scale renewable energy meet approximately 20% of national power demand - which equates to 33,000 gigawatt hours - by 2020. Once fully invested, PARF is expected to own around 10% of Australia's renewable energy capacity, generating enough power for 530,000 homes.

According to The Clean Energy Council, 17,000 GWh of large-scale renewable energy was produced in 2015, and achieving the full target means building 12,600 MW of new capacity. Projects with combined capacity of 6,600 MW have already been approved, although some will not reach construction. The Clean Energy Council estimates that more than A$10 billion will be invested in 30-50 major projects.

"In partnership, QIC and AGL are able to develop, own and manage both existing (brownfield) and new (greenfield) renewable assets, while establishing a governance framework to de-risk the investment. The relationship leverages AGL's development expertise, and their scale as one of Australia's largest energy retailers, to provide long-term off-take agreements. QIC brings active asset management expertise and deep sector capability," Ross Israel, QIC's head of global infrastructure, said in a statement.

The partnership is described as the first of its kind in the development of large-scale renewable energy infrastructure in Australia. This is in part because of institutional investors' reluctance to enter the space due to policy and structural uncertainty and volatile pricing, limited scale, and a lack of GPs with the requisite capital and expertise.

Notably, Australia has struggled with off-take arrangements because of policy uncertainty and the tendency of large industrial customers to switch electricity providers every few years; it has made buyers wary of entering into power purchasing agreements (PPAs) of the length seen in other developed markets. Some state governments have responded by initiating their own power procurement schemes for renewables, although they have yet to achieve significant size.

In this sense, PARF amounts to a workable alternative. By supporting a fund run by an electricity provider, investors have greater certainty over PPAs. The platform is also purposely intended to be large-scale, making it accessible to LPs that might normally ignore renewables funds because the check sizes are too small.

However, this approach is not without risk. Speaking to AVCJ earlier this year, industry participants expressed two primary concerns: off-take agreements under PARF will apparently only be 5-10 years, as opposed to 15 years for many projects in the UK; and they were uncertain as to how AGL would address the conflicts of interest may arise from its multiple roles in the fund.

Future Fund is Australia's sovereign wealth fund and had A$117.4 billion in assets as of March, of which A$8.3 billion was deployed in infrastructure and timberland. QIC has A$75.8 billion under management, including A$7 billion in direct infrastructure investments globally. Last year, it participated in the consortium that is backing Sydney's A$2.9 billion NorthConnex tunnel project.

The QIC Global Infrastructure Fund reached a first close of more than A$1 billion - against an overall target of A$1.75 billion - in August 2015. The LP roster features an Asian sovereign wealth fund, a leading Chinese insurer, and Australian superannuation funds such as HOSTPLUS.

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• Topics
• Australasia
• Cleantech
• Infrastructure
• Fundraising
• LPs
• Australia
• Future Fund
• QIC
• energy