Two small solar farms in Queensland have been sold for less than one third of the cost of building a new one – the victims of heavy curtailment, low prices and the lack of a firm off take agreement. The question being posed by some in the market is: Will battery storage be next?
Earlier this month the listed company LGI announced it had bought the Brigalow and Chinchilla solar farms in Queensland, with a combined export capacity of 42 megawatts (MW) for a price of just $22 million. The seller was Impact Investment Group, part of the Liberman family business empire.
Analysts at Rystad Energy estimate that price to be about 30 per cent of the build cost for new projects, and the assets are expected to operate for another 30 years.
LGI intends to add its own dynamic management technology to improve price outcomes, and is also looking at battery storage, buoyed by the fact that there is more installed capacity than export capacity (54 MWdc vs 42 MW), which gives it room to play and maximise its revenue potential.
In a presentation to analysts, LGI made it clear that it had been hunting for such opportunities, and had conducted due diligence on multiple assets as solar valuations softened in line with energy prices.
It says it is impressed with the quality of the assets, and sees them as a good fit for its landfill gas production and the battery storage that it is planning. And it says the smaller scale assets are easier to handle and manage than the large scale assets that are hitting multiple hurdles across the grid.
“The 42MW of solar across Chinchilla and Brigalow are proven, operational assets acquired well below replacement cost that complement our existing distributed grid connected footprint,” says CEO Jarryd Doran.
But the analysts at Rystad Energy had an interesting take on it. In a note to clients, they described the purchase as a good deal, and said it show that bargains are available for buyers with sufficient capital and that can correctly gauge where the sector is in the cycle.
“The next opportunity in the boom-bust cycle will be to acquire batteries as a near-term oversupply looms,” the Rystad analysts wrote.
That seems ironic, given that it is the huge growth of battery storage that is reducing curtailment and delivering higher average prices for solar farms in Queensland. Battery storage in the state has grown six-fold in the last 12 months, and will double again in the next two years.
“The key lesson from the LGI acquisition is that bargains are available for those with capital and the ability to understand where the sector is in the cycle,” Rystad wrote.
“The next phase of this cycle over the coming 24 months will, we assess, be the battery bust. This is simply an oversupply of utility batteries relative to the amount of energy available to be shifted.
“This will result in intraday spreads and cycles per day falling and likely resulting in some distressed battery assets for those with high merchant exposure.
“These same batteries will likely be the ones available cheaply for those seeking to acquire them, perhaps at a 70% discount to the capex of a new build battery. “
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Giles Parkinson
Giles Parkinson is founder and editor-in-chief of Renew Economy, and founder and editor of its EV-focused sister site The Driven. He is the co-host of the weekly Energy Insiders Podcast. Giles has been a journalist for more than 40 years and is a former deputy editor of the Australian Financial Review. You can find him on LinkedIn and on Twitter.
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