A new debt finance commitment of up to $120 million from the Clean Energy Finance Corporation is demonstrating the value of large-scale renewable energy projects which have not achieved 100% energy offtake agreements through long-term contracted power purchase agreements.

The CEFC is one of the co-financiers in the development of the $588 million 270MW Sapphire Wind Farm between Glen Innes and Inverell in northern NSW. The project is expected to generate enough electricity to power 110,000 homes and abate 600,000 tonnes of carbon emissions a year.

Project developer CWP Renewables has secured a 20-year feed-in-tariff from the ACT Government for 100MW, or 37%, of Sapphire’s output and will trade the remainder of the project’s output on a merchant basis.

“Having a level of contracted offtake is of significant value to a project,” CEFC chief executive Oliver Yates told EcoGeneration in an interview. “Projects which are 100% merchant are still finding it very difficult to secure finance.”

Yates says investors have to weigh the risk of exposure to volatility in electricity spot prices against the certainty of long-term power purchase agreements.

“Some investors are happy to take a degree of merchant risk within their equity case, and obviously some banks, such as ourselves, are happy to lend against that type of risk,” he said.

Analyst Green Energy Markets estimates that by 2018 Australia will need as much as 5,600MW of new capacity – in addition to projects already committed – to avoid a shortfall under the 2020 Renewable Energy Target.

Along with the addition of new supply, incremental changes to the National Electricity Market will also affect spot prices by creating a larger market for generators in different states.

“The reason people find merchant transactions more complex is that when you don’t have a national electricity market, which we clearly don’t because of the pricing difference between states, you need to look at the type of technology, where it’s wind or solar or biomass, as to whether you can determine the time of production,” Yates said.

“That will give you an idea of how that asset performs within the state,” where price is determined by state location, time of production and asset type.

“Having the state schemes available are very important enablers to continued renewable investment at the moment.”

CEFC wind sector lead Andrew Gardner said because the accelerated development large-scale renewable energy projects required to meet the RET means that financiers and developers are “increasingly required to support projects which have an element of merchant risk to augment any PPAs”.

A consortium between Vestas and Zenviron will deliver the Sapphire Wind Farm project, with Vestas supplying and commissioning the turbines, and Zenviron delivering the balance of plant. TransGrid will build, operate and maintain an on-site substation connecting the Sapphire project to the national energy grid.

Image courtesy of Vestas Wind Systems.