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Shorter offtake agreements cloud Aussie renewables

Sydney-based ICG has bought a 107MW wind farm in Victoria but warns of potential difficulties ahead for long-term investors.

Australian fund manager Infrastructure Capital Group has acquired an operating wind farm in Victoria from Japanese trading company Mitsui & Co for an undisclosed sum. 

The 106.6MW Bald Hills Wind Farm, located southeast of Melbourne, started operating in September 2015 under a 15-year offtake agreement with local electricity company Alinta Energy. 

The acquisition, which reached financial close today, is fully funded by the firm’s A$1.2 billion ($922 million; €870 million) Energy Infrastructure Trust. An open-ended structure with a time-weighted IRR of 9.9 percent on the year to end 2016, the EIT targets utilities and assets with long-term CPI-linked contracts, including gas pipelines and gas-fired power generation. 

The wind farm brings the number of utility-scale wind farms in the EIT’s portfolio to five, boosting the firm’s total installed capacity under management to 455MW.   

“We are optimistic about the future of wind energy in Victoria, where there is a sound balance of baseload and renewable energy production supported by a strong electricity network,” said Andrew Pickering, chairman of the firm and portfolio manager of the energy trust. 

“The proximity of Bald Hills to the grid that support the Latrobe Valley minimises the risk of lost output during transmission.”

Pickering said the firm is eager to continue sourcing and assessing renewables projects, but he cautioned that the recent shift towards shorter offtake agreements will make future investments more difficult for ICG, whose superannuation fund investors have long-term investment horizons.

The firm’s current investments are underpinned by 15- to 20-year offtake agreements. Contracts for new projects typically have tenures of five to 10 years. 

ICG, which is currently aiming to raise A$1 billion across its funds and separate accounts, has collected a quarter of that target, Infrastructure Investor reported two weeks ago. 

Mitsui, until now the wind farm’s sole owner, acquired the project’s development rights in May 2008 and built it in 2014. Last week, the trading company agreed to acquire a 20 percent stake in CIM Group, a US urban real estate and infrastructure fund manager, for up to $550 million.