Queensland Solar Farms Sold Cheap: Is a Battery Bust Coming?
In a striking development, two small solar farms in Queensland have exchanged hands for less than one-third of what it would cost to establish new projects. The farms, affected by significant curtailment, low pricing, and the absence of a firm off-take agreement, have sparked speculation about battery storage being the next asset to face similar struggles.
Earlier this month, LGI, a publicly listed company, announced its acquisition of the Brigalow and Chinchilla solar farms, boasting a combined export capacity of 42 megawatts (MW), for a mere $22 million. Impact Investment Group, linked to the Liberman family business, was the seller.
Economics of the Purchase
According to analysts at Rystad Energy, the purchase price equates to roughly 30 per cent of the building cost for new solar projects, with expectations for these assets to remain operational for another 30 years.
LGI plans to integrate its dynamic management technology to enhance pricing outcomes and is also exploring battery storage options. The firm noted that the installed capacity exceeds the export capacity at 54 MWdc compared to 42 MW, allowing room for optimisation and increased revenue.
Strategic Moves in a Changing Market
In a recent presentation to analysts, LGI highlighted its proactive approach in identifying such opportunities, having conducted thorough due diligence on various assets as the valuation of solar projects has weakened in response to falling energy prices.
The company expressed confidence in the quality of the acquired assets, viewing them as a strong addition to its existing landfill gas production and future battery storage initiatives. LGI further noted that smaller solar assets are generally more manageable compared to larger installations facing various grid-related challenges.
CEO Jarryd Doran stated, “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.”
Market Analysis and Future Prospects
Rystad Energy provided an insightful commentary on the acquisition, labelling it a good bargain and emphasising that opportunities are available for well-funded buyers who can accurately assess the market cycle. They noted, “The next opportunity in the boom-bust cycle will be to acquire batteries as a near-term oversupply looms.”
This perspective is particularly noteworthy given that the rapid expansion of battery storage has been pivotal in lessening curtailment and yielding higher average prices for solar farms across Queensland. In fact, battery storage in the region has increased six-fold over the past year and is projected to double within the next two years.
The analysts concluded that the LGI acquisition underscores the potential for advantageous deals for those equipped with capital and an understanding of the sector’s cyclic nature. According to their assessment, the next phase over the next two years could lead to an oversupply of utility batteries compared to the energy that can be effectively transferred.
They warned that this situation may lead to decreased intraday price spreads and cycles daily, potentially resulting in distressed battery assets for those heavily invested in the merchant market. This situation could present opportunities for acquiring batteries at substantial discounts, possibly up to 70% off the capital expenditure required for new battery installations.
