As investment in the sector seems set to continue, we look at a few important considerations for prospective investors who are not familiar with the Australian market.
Australia’s State system
Australia’s energy market is divided along state lines with the NEM comprising five interconnected states – Queensland, New South Wales (including the Australian Capital Territory), South Australia, Victoria, and Tasmania – that are also their own price regions. The Wholesale Electricity Market covers Western Australia and the Northern Territory Electricity Market covers the Northern Territory. With different states come different rules and regulations to be navigated.
In Western Australia, there are two separate electricity grids, the North West Interconnected System (which mostly services mining companies in the north of the State) and the South West Interconnected System (which comes under the WEM). The Northern Territory on the other hand consists of three small regulated systems covering the main populated areas with mini-grid systems covering many remote mining and Indigenous communities.
Investors entering the Australian market now are more likely to come in at the construction phase of a project. This is partly because Australia’s PV industry is relatively young so there are fewer built PV plants to buy in the first place. Another important factor to bear in mind is that the stamp duty payable on an operational project is high and so can wipe out returns – going in when the project is shovel ready can increase those returns.
Managing a PV plant through construction is far more laborious and demanding than managing an already up and running PV plant. It involves navigating the complexities of managing a number of different counterparties – technical advisors, asset managers, Transmission Network Service Providers (TNSP), Distribution Network Service Providers (DNSP) and EPC contractors to name a few. One of the biggest challenges facing anyone managing a project in construction may be the fact that they are subject to constant change due to the many moving parts. There are often detailed milestone schedules to be adhered to and more often than not contractors have to be pushed to undertake the works, and provide the deliverables, by the deadlines set out. Variables outside of a project manager’s control, such as weather conditions, delays on deliveries etc, can mean deadlines are not met. All of this means that construction management can be time consuming and onerous.
Indigenous heritage laws
Australia’s individual state and territory governments each have their own laws that exist to recognise, protect and conserve various sorts of Indigenous heritage. These laws will typically set out guidelines to be adhered to during construction with the purpose of minimising any activities that may harm Aboriginal cultural heritage. A due diligence search of the Native Title Register will determine the Native Title Claimants in the area where the PV plant is to be built and it may be advisable to enter into a cultural heritage agreement with the Claimants as this would reduce the risk of a stop work order being issued in case of disputes.
Health & Safety
Whilst H&S is a concern at all PV plants, the risk is always heightened during the construction phase, and accordingly H&S regulations are more stringent. As well as the usual H&S equipment you would expect to find, Australian PV plants are likely to have a few special requirements of their own – think of items such as snake bite kits, dust masks for projects based in windy desert locations and ultra high frequency radios when projects are located in areas with no signal. These sorts of requirements may not immediately come to mind to anyone building in Europe but may be obligatory when building in Australia.
AEMO is responsible for calculating the financial liabilities of, and the credits due to, market participants on a daily basis as well as settling all trade in the NEM on a weekly basis. Navigating the AEMO’s settlements and payments rules can initially seem daunting to new investors.
Marginal Loss Factors (MLFs)
MLFs represent the loss of electricity as it flows through the transmission network, due to resistive heating of transmission lines. MLFs are calculated and fixed annually to facilitate efficient market scheduling and settlement processes in the NEM. Due to the changing nature of the NEM with more renewable (semi-scheduled) generators connecting to it, MLF forecasts are becoming increasingly complicated to predict. In the past year MLFs have reduced up to 20% for some generators which equates to 20% difference in the output production generating revenues for a particular asset.
Distance to projects
Whilst it is not uncommon for London based owners to visit the PV plants they have invested in all across the UK, anyone investing in PV in Australia would be looking at pretty hefty travel costs if they wanted to visit their investment on a regular basis due to the typically longer distances to projects Down Under. As projects may well be based in remote desert areas, during the construction phase, it is common to engage local people to do unskilled works.
These factors are just a few of the considerations that should be kept in mind by prospective investors. QE provide specialised PV construction management services, as well as asset management services in Australia. If you would like to speak to us about this, or any related matter, please contact Joanna Leigh, our Head of Asset Management, Australia, via the enquiries section of our website.
This article is written and edited by Shirine Azzi. She can be contacted at: email@example.com
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