Q&A: Gerry McGowan

The managing director of CBD Energy tells Climate Spectator editor Giles Parkinson that:

– CBD's actively sought to join forces with Chinese power companies because they knew they'd have the lowest-cost manufacturing base and the appetite to grow internationally;

– The $6 billion joint venture with China Datang Renewables and Baoding Tianwei will get CBD's costs down to around $90/MWh and the company aims to drive it down below that over time.

Giles Parkinson: Yours is a reasonably small company just about to become the biggest renewable energy company in the country. It's a very ambitious plan, isn't it?

Gerry McGowan: Yeah well, it's very exciting for us to be in this position, but it's one that we've brought about ourselves and, we've made the effort to get up to China, get to know people up there and open an office there and this is the result of, one and a half years of hard work.

GP: Is that because you guys identified that the Chinese would be the best source for cheaper equipment and cheaper finance and that, in effect, the best way into renewable energy in Australia was to go to China?

GM: That's right. We always knew that they were going to have the lowest-cost manufacturing base. And they had the appetite to grow internationally. We always recognised that, so we wanted to make sure we placed ourselves in that position.

GP: And how much cheaper will you be than rival ones?

GM: We think we can, immediately, get our costs down to around about the $90 per megawatt hour (/MWh) mark. And we aim to drive it down lower, below that over time.

GP: And how does that compare with the others? Probably about $110MW/h, $120/MWh?

GM: That's right.

GP: Ok. So, reckon you've got a cost competitive advantage right from the start?

GM: Absolutely.

GP: And that includes the cost of capital?

GM: Yes.

GP: And how much of an advantage is the cost of capital?

GM: Well, I don't want to give away commercial secrets, but it will be significantly under what we could hope for within Australia.

GP: Significantly under?

GM: Yes.

GP: Ok. And how are you actually going to develop it? I don't understand yet whether this enables you to build a wind farm without a PPA and then organise a PPA later, or do you still rely on a PPA before you go ahead. Because that's still a problem that affects everyone?

GM: No. Obviously we would still require a PPA. And we are addressing that issue. We have plans in that area that will become obvious in the next couple of months, but we will be building with a PPA.

GP: So what I can presume, then, is that because you've got this low cost of capital and this lower construction cost, then you can got a competitive advantage there.

GM: That's right.

GP: Ok. You're transferring some of your development portfolio into this vehicle. There's talk of about 500MW. Where are these projects?

GM: Well, we're working with several companies at the moment that have projects already approved and so, we will be working with those companies to either purchase the sites off them or build in conjunction with them.

GP: So, come in as partners.

GM: So, there are plenty of wind sites that have been developed in Australia, but because of the state of the market, they can't get off take agreements. So, there's a lot of pent up demand for construction in the industry domestically.

GP: You almost will be re-writing some of the parameters of what the industry has been operating under.

GM: Yeah. We're hoping that he who delivers the lowest cost, will have an advantage, but that remains to be seen.

GP: Why? What could affect that?

GM: Well, people like AGL have had a history of wanting to develop their own and there is no incentive really in that market to get… to go the lowest cost. They can hold out and develop their own. At the end the consumer pays the price for it.

GP: How do you go about that because basically you've got three gatekeepers there? You've got TruEnergy, you've got Origin. You've got AGL.

GM: Yeah. And so, we're hoping that commercial sense prevails or we would find it necessary to try and compete in some way.

GP: Right. How would you do that?

GM: Well, we'd retail our power.

GP: Retail power? That's an interesting prospect. Would that be to have an electricity retailer, or a merchant operation like Infigen.

GM: We haven't decided the model, but I think my preference would be to actually retail.

GP: This ambition to have 1500MW within three years, is that built or building?

GM: It can be either, but we expect to be building the vast majority of that.

GP: That's a quicker roll-out than what's been expected of the industry as a whole.

GM: Yeah. Exactly. It's 500MW a year.

GP: Starting what? Next year?

GM: Starting this year.

GP: Starting this year?

GM: We know where the projects are coming from. We have the pipeline. We know that we've got the banking. We know we've got the know-how. The question is can we get the off take?

GP: And so, if you can't get the off take, then you'll sell the stuff yourself?

GM: Yeah.

GP: Why does Datang choose Australia?

GM: I think it was luck on our part and that they were looking to move offshore and we were over in China talking to them about coming to Australia. So, they were looking for offshore opportunities and we presented them with Australia.

GP: It's interesting what you said though in the press conference. You didn't think a carbon price was necessary or even desirable.

GM: No.

GP: Why not? It's just a funny thing for a renewable energy developer to say.

GM: Well, I think a tax is a tax and someone's going to end up paying for it. The industry is already getting blamed for enough as it is. And, you know, I think we need very simple policies in very clear settings and let the government get out of the way. The 2020 target is a great start and we're starting to get people attacking our target and I think it's really stupid of us. We've got such great resources here in Australia. Why not use our solar and our wind to promote clean energy and lessen the burden on burning fossil fuels?

GP: In a sense a carbon price really replaces the price of the renewable energy certificates if it's constructed properly, what you're worried about is the complexity of it?

GM: Yeah. And I'm worried about the reaction of the general population to it. See, I think the average Australian wants to do something, and wants to reduce our carbon footprint. We're seeing it in our solar business where, you know, every week we're installing four to six hundred customers with solar on their roofs. They're not doing it because it makes commercial sense. I think they're doing it because they want to get independent, because they know prices are going to continue to rise and they want to do their bit for the environment, and they are… there is that sentiment that they are trying to leave a better Australia behind.

GP: Is there any longer term ambition on this… You've announced your ambition to have one third of the market and that's a big chunk of the market. Is there any longer term ambition?

GM: Well, we want to grow an international renewable energy company, so the aim is to go offshore. I believe initially that will be to China, but we have ambition to grow in other parts of the world where we…

GP: Well, you've got the various projects in Thailand and other places too, haven't you? .

GM: Yeah. Italy, the UK, we have solar projects in both those places, so we intend to continue to grow our international profile because internationally you've got a much more stable environment.

GP: The AusChina joint venture that you've announced today, this is just about wind?

GM: No. That's about wind, solar. It's about energy.

GP: So, what are you talking about then in solar? Because you've got a domestic solar business at the moment…

GM: I'm sure that longer term you'll see us in wind, solar and gas.

GP: And gas?

GM: Yes.

GP: Oh, ok. So it's going to become a heavy duty player in the Australian energy market?

GM: Datang are a 100,000MW company.

GP: And they'll be doing all of this through this joint venture?

GM: Yes.

GP: And solar; are you then talking about commercial-scale solar?

GM: Well, we would like to think that we could do commercial scale solar in Australia, but it's just not there yet.

GP: What's stopping it from being there?

GM: Well, you know, once again the cost of solar is not going to be competitive at the moment. Over time it will, but at the moment it's not.

GP: A carbon price would help.

GM: A carbon price would help, but it's… it may not help the industry as a whole.

GP: To what extent is this a little bit like what you were trying to achieve with Impulse Airlines I don't know whether you see it as in the same context.

GM: Oh, we've certainly had a duopoly, back then, in aviation and I think it's been very healthy what's happened with aviation in Australia. You could argue the same thing is here in energy, where you've got three large players; but, you know, we don't necessarily have a combative motive here. But we want to build wind farms. We want to be the lowest cost producer of wind energy and solar energy in Australia and we're more than happy to sell it to the incumbent players in the market.

GP: I guess it's different in the sense you're not trying to steal market share from them, but this is actually a growing industry which you're trying to steal a march as it were.

GM: It is. And we think we bring something different to the industry from what has been there in the past.

GP: You are also involved in the… In King Island REDP Project?

GM: Yes, we are. You'll see construction starting second half of this year.

 GP: A lot of these REDP projects have not progressed.

GM: No, it's a live project and there is a push on to progress that. And actually we've just had the Datang people down on King Island having a look, and they are very excited by the prospects

GP: Why? What's their involvement in it?

GM: Well, they don't have an involvement. We're just showing them what we're trying to do there. Because China has a lot of people that are not on grid and King Island could be a great demonstration for off-grid projects in China.

GP: And because King Island is trying to bring together wind and solar and battery storage, isn't it?

GM: It is.

GP: Is there any intention by Datang or Tianwei to take direct equity stakes in CBD?

GM: I'm of the view that you will see that over time, yes.

GP: Thanks very much, Gerry.

GM: Thanks, Giles.