The Future Fund has invested in the development of large scale solar and wind power plants in Australia through its fund manager QIC.
It is the $117.4 billion sovereign wealth fund’s first investment in its QIC infrastructure mandate, after nearly four years.
“The Future Fund have been very patient through those four years as we tried to find deals to put into that mandate. We’ve worked very, very closely with them so it’s wonderful to finally be able to put some money into the ground for the Future Fund,” Damien Frawley, chief executive of QIC, said.
On behalf of the Future Fund and other managed clients, QIC has entered into an $800 million strategic partnership with AGL Energy Limited (AGL) to form the Powering Australian Renewables Fund (PARF).
PARF provides institutional investors with an opportunity to finance a portfolio of renewable assets, overcoming the problem of a lack of diversity that traditionally has been a barrier.
“It’s unusual to get solar and wind in one investment. Typically, we found you get one fuel source made available to you, so having two is attractive,” Ross Israel, head of global infrastructure at QIC, said.
“The second diversifying aspect is getting multiple locations because obviously you are at risk with fuel source in renewables and that also help allay some of the risks that appears elsewhere.”
PARF will provide $1 billion in equity ($800 million for QIC and $200 million from AGL) to acquire and develop large-scale renewable energy infrastructure.
The aim is for PARF to be the $2-3 billion owner of more than 1,000MW of large-scale renewable energy projects to support Australia’s renewable energy capacity and transition to a low-carbon economy. Once fully invested, PARF expects to own approximately 10 per cent of Australia’s renewable energy capacity, QIC said in a statement.
“This signals quite a strategic step in the transition to a low carbon economy,” Israel said.
“Institutional capital has found a landing with a strategic player in a structure that will allow existing assets to be unlocked, but also then the development of new assets under a set of acceptable risk return framework.”
Initially, two solar power plants have been acquired at Broken Hill and Nyngan in NSW. The former has a total capacity of 155MW and the latter 102MW.
There are also plans to develop two wind power plants in NSW and QLD in 2017/2018.
“One will be in Queensland at Coopers Gap and one in New South Wales that [between them] will deliver another 550 MW, which [with the solar] gets you very close to three quarters of the 1000MW for the fund,” Israel said.
Israel added in the world of power generation there were many factors in-putting into fuel risk, which were absent from renewables.
“When you compare it to thermal coal – a topical area given the nature of this low carbon drive – you’ve got a whole range of issues asserting themselves there. You’ve got another issue with respect to gas and the pricing at the present time.
“In this point in the cycle, we feel there is diversification in renewables.”
This said, the Future Fund is a strong supporter of fossil fuel related industries and its chair, former treasurer, Peter Costello, has consistently maintained that it will not join the push to divestment from the sector.
The Future Fund said it does not comment on individual investment transactions and referred all questions to its managers – in this case QIC.