CLEAN AND renewable energy sector deals have dominated the headlines this year, and the demand for legal expertise in the climate change and energy market shows no signs of abating.
The latest spate of deals announcements from top-tier firms Clayton Utz, Baker & McKenzie, Freehills and Gilbert + Tobin included significant projects in gas, solar and wind powered energy (see deals table page 3 for full details.)
Gilbert + Tobin partner Vincent Dwyer attributed the increased demand to the government’s recently announced climate change policy and renewable energy targets. Dwyer acted as lead partner on AGL Energy Limited’s recent sale and long-term off-take and management of its 71MW Hallett 2 wind farm to a subsidiary of the Energy Infrastructure Trust, an investment vehicle managed by ANZ.
“The mandatory renewable energy target, which is an obligation on retail suppliers of electricity to buy a certain quantity of their electricity from renewable sources, has been increased to a target of 20 per cent by the year 2020,” Dwyer said. “That’s driven a lot more investment into the renewable energy sector in the last 12 months, and will drive a lot more going forward.”
The AGL wind farm deal is the latest in a series of collaborations between AGL and Gilbert + Tobin, and combines two of the federal government’s long-term investment priorities — superannuation and green power.
“It’s the perfect investment for a superannuation fund because they are getting a 25-year AGL-backed revenue stream out of this wind farm,” Dwyer explained. “It’s quite a novel structure, AGL finds these wind farm sites and develops them … then agrees to enter into a 25-year deal to buy all the electricity and take on all the principal risks in the wind farm.”
Over a series of deals, Dwyer oversaw Gilbert + Tobin’s development of a full “package” for AGL, which involved managing the transaction through from due diligence and preliminary negotiations with the banks, to the final offer and sale to equity investors.
The multi-faceted deal structure evolved from the difficulties inherent in raising funds in the current debt market, combined with the volatility of the energy market. AGL originally purchased the wind farm sites 12 months ago, and the Gilbert + Tobin climate change and energy group has spent more than eight months working to bring the deal to market.
As competition in the renewable energy market heats up, established players such as AGL will continue to have a strategic advantage over smaller start-ups, Dwyer said. AGL was able to take on the full risk of the transaction, he said, making the final share offer more attractive to finance institutions, investment funds and ultimately private equity investors.
“It’s actually a very good structure to maximize the return to AGL,” he said. As for the future, Dwyer predicted that energy deals are only going to get bigger,
“It’s traditionally been small investments in wind farms or solar farms of 5mw or 10mw, whereas now these last three or four [deals] have been 100mw. Other ones we’re looking at are going up to 450mw, and … there are power stations in the Hunter Valley are 1000mw,” he said.
“These projects are starting to get up there in terms of the quantity of power outputs, and as bigger players get involved the projects are just going to get bigger because they are costly to do. These big companies are no longer tinkering at the margins and I think [going forward] you’ll get larger projects that require more sophisticated analysis.”