First Sentier Investors Senior Portfolio Manager Tim Canham discuss their substantial shareholding in renewable energy company Genex Power.
Overview
• In Australia there are very limited options to gain exposure to the renewable energy sector due to recent corporate activity.
• Infigen was taken over by a Spanish renewable giant.
• Snow Town wind farm was taken over by private equity.
GNX key projects are:
• Kidston Solar Project – This has a long term ( 30 years) power agreement with the Queensland government, giving GNX secure and stable returns over the period of this contract.
• The Jewel in the crown – Kidston pumped storage Hydro Project
There is huge demand for this type of investment
The Kidston Hydro project gives GNX a lot of flexibility.
• When the demand or prices for electricity are low, GNX has the ability to pump water uphill and store it like a battery
• When demand or prices are high GNX has the ability to release the water downhill and create electricity.
The following funding Investments / agreements mitigate a significant portion of the funding risk for a large project like this.
• J Power has agreed to invest $25 million to gain exposure to this project
• GNX will sell down of 50% of the project to an equity partner.
• NAIF have provided a $600 mill long term loan for this project
• ARENA will also front up $40 mill for this project
Key Risks
• Genex has signed a long dated take off agreement with Energy Australia who will also be responsible for operating this asset.
• Energy Australia in turn has entered into a long-term rental contract with Genex, which helped secure the long term from NAIF.
• Despite all this, cost over runs remains a concern going forward for a project of this size.
