New Energy Solar is selling its two Australian solar assets following a strategic review of its portfolio.
The firm, a subsidiary of asset manager Walsh & Company, manages the Australian Securities Exchange-listed New Energy Solar Fund and the London-listed US Solar Fund, the latter backing US solar projects.
New Energy Solar appointed RBC Capital Markets to conduct a portfolio review in September to develop recommendations that would improve shareholder value. The first phase of the review has concluded with a recommendation to sell its two Australian assets and exit the country’s renewable energy market.
The RBC review found that the two assets – the 60MW Manildra Solar Farm and the 111MW Beryl Solar Farm – were of a high quality but that this was not being reflected in New Energy Solar’s share price.
Reasons for this include the composition of the share register; low levels of trading liquidity; the scale of operations; the modest following by market analysts; the inability of small-cap listed renewables companies to gain traction on the ASX; levels of gearing; the location of the two assets in different markets; and the level of complexity in New Energy Solar’s corporate structure and reporting. The firm said the sale would allow it to focus on the US and reduce the complexity of its business.
“With 14 of NEW’s 16 assets in the US, the Australian assets are not NEW’s primary business,” New Energy Solar head of investor relations Fleur Jouault told Infrastructure Investor. “Further, scaling NEW’s Australian business to a more substantive size would take considerable time, given the currently low levels of investment in new utility-scale solar projects in Australia.
“We see considerably more activity in terms of projects, transactions, offtakers and participants in the US market and, with supportive federal and state renewable energy policies, the levels of activity and new investment in the US are high. There will eventually be change in the Australian electricity market when large coal generators begin to retire, but that is unlikely to be in the near term.”
Manildra and Beryl both have high levels of contracted revenues. Manildra is 100 percent contracted to EnergyAustralia to 2028 with an option to extend to 2030. Beryl is 69 percent contracted to the New South Wales Government’s Sydney Metro for 15 years and 29 percent contracted to Kellogg’s Australia for more than seven years, with an option to extend to December 2029.
Despite this certainty of revenue, a lack of clarity around Australian energy regulation and policy was a factor in the decision, Jouault said.
“The piecemeal approach to energy policy in Australia and issues like marginal loss factors put Australia at a competitive disadvantage when global investors in the electricity and energy sectors are assessing markets,” she said.
“Given NEW’s experience in the US and Australia, we currently see more and better opportunities in the US – particularly in terms of depth in the renewable energy PPA and finance markets, which are essential to underpin new projects.”
The two assets together had a book value of A$124 million ($88 million; €75 million) as of 30 June.
RBC will conduct a competitive auction process for the assets, with the indicative bid phase commencing in January and targeting completion by mid-2021.