Canadian group highlights the trouble with Australia’s energy ambitions
Canadian group OMERS Infrastructure is steering clear of Australia’s planned renewable energy zones, and says the delays in planning and development are pushing up costs and making investments too risky,
The $C34 billion ($38.6 billion) infrastructure fund, which owns stakes in NSW’s electricity network Transgrid and renewable energy developer FRV Australia, previously had “grand ambitions” for investments in Australia, managing director Kevork Sahagian told The Australian Financial Review Infrastructure Summit in Sydney.
OMERS Infrastructure managing director Kevork Sahagian (right) and Powerlink executive Jacqui Bridge at the Infrastructure Summit. Oscar Colman
But OMERS was struggling to close investments in renewable energy projects through FRV because of rising interest rates, higher inflation, supply chain disruptions as well as scarce and expensive labour, he said.
It was finding it hard to find engineering contractors with connections to transmission networks, and the prices for power purchase agreements (contracts to buy and sell energy at an agreed price) had risen about 30-40 per cent over the past three years, making it challenging to find customers.
Although FRV has reached financial closure on one large solar project in NSW and is approaching that stage for a handful of others, OMERS is “well short” of where it had hoped to be when it invested in FRV in late 2001, Mr Sahagian said.
There are issues with the “bid-ask spread” of what people are willing to pay for energy and what can be delivered in the current market, he said.
OMERS wants governments to provide investors with “a really deliberate and methodical plan that actually gets delivered on,” he said.
“We’ve intentionally stayed away from the [renewable energy zones] … we see a lot of risk in some of the delays. We’d prefer to focus on opportunities where we can control our own destiny.”
NSW’s first renewable energy zone, the Central West-Orana zone, is not expected to be connected until 2027 or 2028 compared with the originally intended 2025, and will be about five times the originally estimated cost, at more than $3 billion. The cost of materials such as batteries or solar panels is between 20 per cent and 30 per cent higher in Australia compared with the US, underscoring why the country needs to be more efficient, Mr Sahagian said.
In addition, the cost of insurance had risen between two and four times since OMERS made its initial investment decisions, because of less competition among insurers and more volatile weather, he said.
Jacqui Bridge, executive general manager of Powerlink Queensland’s energy futures business, said the state was taking a different approach to other states when making plans for its 12 renewable energy zones, including asking the project operators that connect to them to pay a proportion of the costs.
It is also reviewing purchasing arrangements with suppliers. “We know that equipment is not only getting more expensive, but lead times are getting significantly longer.”
Queensland is also changing how it pays landholders for hosting infrastructure required to build renewable energy zones, Ms Bridge told the Summit. “The payments that landholders in Queensland will receive as we acquire new easements will be higher than they would have been under the previous scheme but they’re not a flat rate per kilometre.
“The rates are related to the value of the land and the impact that the infrastructure will have.”
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