Pac Hydro's solar gamble - 2nd time lucky?

Despite the GFC, it is still possible to proceed with power projects without a retailer purchase agreement, Pac Hydro's Lane Crockett explains, while the company is still confident on the Moree Solar Farm.

In the second part of Climate Spectator’s interview with Lane Crockett, Pacific Hydro’s General Manager in Australia, we discuss the company’s Solar Flagships bid and solar’s potential role in the Pacific Hydro business going forward. We also briefly touch on its entry into the electricity retailing business and views on the Clean Energy Finance Corporation.

What is most interesting for me is that Pacific Hydro isn’t just throwing its hands in the air and saying it’s all too hard because of difficulties in obtaining long-term power purchase agreements (PPA) with electricity retailers.  In this interview, Crockett explains how if the company were to win the Solar Flagships tender, it will proceed with the Moree 150MW solar PV project without a PPA from another retailer. Instead, it will rely on its own new retail arm, plus Pacific Hydro is willing to “go merchant”, which will involve taking some exposure to price risk in wholesale markets in electricity and Renewable Energy Certificates (RECs/LGCs).

While Pacific Hydro had developed wind farms prior to the Global Financial Crisis without a PPA, I had thought that this was now too difficult. Crockett sets me straight, explaining that things are not all that different now than prior to the GFC. He says that bank finance is available at reasonable terms for renewable energy projects without a PPA.  

Pac Hydro is now looking at a variety of models for selling the output from their projects. This still includes the vanilla model of fully contracting output to a single retailer over a long time period which provides the lowest cost financing option. But the company will also look at partly contracting with a retailer, plus using its own energy retailer arm to hedge some market risk, and also other financial hedging instruments and taking some degree of market risk themselves.

In relation to its Solar Flagships bid, Pac Hydro believe it still has a good chance. As mentioned previously, they’ve worked around the previous difficulty of no PPA. But in addition, its bid this time involves a far lower price tag than the original. With BP Solar dropping out as a consortia member, Pacific Hydro has been able to go out to market for supply of PV panels and obtained dramatically lower prices.

At present Pac Hydro will remain focussed on Moree as its sole solar PV project, but Crockett can see broader potential. He believes the dramatic price drops on panels over the past two years will slow into the future. But even so he says it’s reasonable to expect that PV could be competitive with some wind projects in NSW towards the end of this decade.    

In relation to the Clean Energy Finance Corporation, Pac Hydro can see pros and cons. Crockett is enthusiastic about its potential to help finance transmission infrastructure. But he isn’t keen on it funding projects that might lead to significant numbers of additional RECs. Crockett’s view is that the best role for the CEFC is to look to finance technologies and projects that will set us up to go well beyond the 20 per cent target in the period post-2020.