Profile: RES doubles its Australian asset management business

RES just announced its acquisition of infrastructure asset management business Blueshore, which has 1.6 GW of assets under management, to more than double its asset management portfolio in Australia to over 3 GW. In addition to its asset management division, RES continues to progress its portfolio of projects under development with around 5 GW wind, solar and storage development pipeline across the NEM and WEM markets in Australia, and operations & maintenance services. AltEnergy cornered Grant Harris, RES’ Director of Asset Management, Asia Pacific, to find out more about the Blueshore deal, RES Australia’s growth, and the outlook for the large-scale renewable energy industry.

Can you tell us a bit more about the Blueshore acquisition please Grant, and the rationale behind it?

RES is looking to grow its Support Services business organically and through acquisition as we look to broaden and enhance the services we provide to our clients. The biggest rationale behind the acquisition is the team at Blueshore who are both passionate and experienced plus share the same family culture and values as people at RES.

Does the Blueshore deal signal a new level of maturity in the Australian renewable energy industry, with an increasing number of completed, generating projects coming on line?

The renewables market in Australia is certainly reaching a new level of maturity. Owners of utility scale solar, wind and storage projects have gone through a learning curve on operating projects over the last couple of years in a very complicated and challenging operating environment. The value that companies like RES and Blueshore offer to asset owners is being recognised and we are well positioned to support our clients as we proactively prepare for future changes to the operating environment and ensure we secure value for our clients by staying ahead of the curve.  

For those of us who might not fully understand, can you explain what the usual activities of a large-scale solar and wind farm asset management company involve?

Many of our clients are large funds who utilise RES’ experience to provide full management of the project SPV company. The full service is a very wide ranging set of activities and we would typically oversee all compliance, financial and technical aspects of the project. This can include financial management, company secretary, business planning, management of contract obligations, day to day management of contractors, management of regulatory compliance including energy markets, development approvals, technical compliance with the GPS, grid and network obligation. Additionally we would have oversight of Health and Safety on Site and could also be engaged to manage community and stakeholder engagement. We offer comprehensive reporting on project performance on a monthly, quarterly and annual basis to meet client and lender requirements. Often RES would take on a project at the beginning of construction and would manage the build of the project under the EPC contract and then post Practical Completion into normal operations, also taking on full management of defects, punch lists and supervising EPC performance testing.

RES can also provide enhanced performance optimisation services deep diving into performance at an individual turbine or inverter level (e.g. Inverter digital twins, condition monitoring of drive train components, monitoring turbine performance to power curve). This can be delivered as part of our asset management service or alternatively as a standalone service to clients with third party asset managers or who self-perform asset management.

RES can provide 24/7 365 monitoring of the plant via our global control centre operation based in Glasgow and Sydney.

RES also has extensive experience of management of large portfolios of projects providing full oversight, management and optimisation / value enhancement services across the whole portfolio.

What is RES’s 1% Club?

In the past RES has been certified as delivering one percent more availability than the average in the market. That can be significant over a 25-year investment period.

So between the full project life cycle services RES is offering – development, O&M and asset management – your Australian team must be growing?

We now have offices in Sydney, Melbourne and Brisbane, along with regionally based team members. RES has over 100 team members in Australia working across the project life cycle, and in support services.

What is your own personal background and experience in the Australian renewable energy industry?

I have been working in renewable energy and low carbon technology since 2007.

Prior to this role, I was the Commercial Director at RES in Australia for 5 years, responsible for setting and delivering our wind, solar and energy storge business objectives, with a focus on leading M&A activity, delivering offtake solutions and securing equity investment and debt financing for our projects. Prior to this I worked for RES in the UK helping the business set up a listed fund for 17 of our operating assets and diversity into new markets. Prior to RES I worked in the low carbon innovation sector, through a consultancy and a broking capacity.

What do you think are some of the key grid, regulatory and market issues to keep an eye on this year?

2022 is going to be a massive year:

AER compliance

  • AER have advised in their enforcement update that generator compliance with dispatch instructions is in their top 5 priorities for 2021-2022. We will be paying close attention to monitoring dispatch compliance and solving any problems as they may arise.
  • AER have also initiated consultation with generators in regards to GPS compliance systems, policies and procedures. We participate where required on behalf of our clients.

Auto-bidders

  • We are interested in the increasing uptake of auto-bidding software in the market. In combination with the 5MS rule change in October last year and increasing amount of storage, the response time of participants is generally shortening. This will be worth keeping a close eye on.

Primary Frequency Response Incentive Arrangements – rule change

  • This rule change aims to incentivise behaviour of generators which stabilises frequency. It stems from the Mandatory Primary Frequency Response rule change.
  • Likely to include significant changes to the causer-pays process, which will affect our clients.

Capacity Mechanism and Congestion Management Mechanism

  • The ESB is tasked with formulating a rule change and consultation process by end of 2022.

Connection Reform Initiative

  • The Connections Reform Initiative is working on a range of solutions to address the systemic concerns involving all parties in the connection process. It is vital that improvements are made to the connections process to ensure that the system can safely and securely take on the high number of large-scale renewable energy projects that are and will continue to register to connect to Australia’s power systems.

Integrating Energy Storage Rule Change

  • The AEMC finalised its rule change for integrating energy storage into the NEM
  • Storage and hybrid systems will be able to register as an Integrated Resource Provider instead of under two different categories
  • GPS compliance can be assessed separately for each technology type but aggregated at the connection point, this will help simplify storage retrofits
  • Existing hybrid and storage facilities will need to re-register under the new rules from 2024 but the GPS will not be reopened
  • TUOS fees still need to be negotiated with TNSPs and will not be waived as a default position

 ESB Congestion Management Model

  • The ESB are undertaking the design of a Congestion Management Model throughout 2022
  • The model seeks to address issues associated with unmitigated generator curtailment and uneconomic dispatch associated with disorderly bidding
  • There is a significant opportunity for the industry to work with the ESB on the design process, RES are engaged in the working group

 State led development of REZs

  • The connection framework and risk exposure is diverging significantly between states
  • It is increasingly important for developers and investors to understand the risks and opportunities associated with a wide variety of REZ development models being progressed by NSW, Queensland and Victoria

 

Profile: RATCH Australia completes Collector

RATCH-Australia recently reached the final hold point for Australia’s newest wind farm at Collector in the NSW Southern Tablelands. This is following a phased commissioning process with first generation starting in November 2020. The $360 million project saw 54 turbines installed with a total capacity of 226.8 MW.  It’s RATCH’s largest Australian renewable energy project to date. AltEnergy asked RATCH-Australia’s Executive General Manager of Development and Projects, Anthony Yeates, about the Collector Wind Farm, RATCH’s history in Australia, and where the company plans to go from here.

Anthony Yeates takes to the heights

At 226.8 MW the Collector Wind Farm is RATCH Australia’s largest project to date. Were there any particular issues or obstacles to overcome in terms of planning and construction?

A.Y. The planning process took a very long time and a lot has changed over the course of the project. There was a period when the renewable energy industry came under a lot of attack from certain politicians and this was reflected in some vocal community opposition to our project. But in recent years there has grown to be a very high level of acceptance of renewable energy projects like this one. In terms of the construction phase of the project, I would say that most of the obstacles that we faced were challenges that we had prepared for and generally things have proceeded very smoothly.

Perhaps the most unpredictable issue that arose was the COVID pandemic. The project suffered from supply chain issues for equipment that was manufactured overseas. Border closures and quarantine measures placed a significant burden on the workers who needed to travel interstate or internationally to work on the project. But thankfully the experience of our contractor Vestas and their site team, as well as the dedication of our project management team really helped in keeping us ahead of any problems that arose and the project on track.

Who were your major construction partners for the project, (eg. turbines, EPC, electrical, civil) and who’s doing the O&M going forward?

A.Y. It takes a lot of people from a lot of different organisations to get a project like this off the ground. The construction was led by Vestas who installed 54 of their V117-4.2MW wind turbines. Civil balance of plant was led by Symal, and the electrical balance of plant was led by RJE. TransGrid built the new substation and switchyard, assisted by their main contractor UGL. We also benefited a lot from the services of our Owner’s Engineer team at WSP.

You also attracted PPAs for the project. Can you outline these please?

A.Y. We initiated construction of the project on what we call a “fully merchant basis”, meaning that we had no PPA contracts in place when we started construction. We have locked in two offtake contracts covering roughly 80% of the output of the project over the course of the construction. The first one signed was with Iberdrola Australia (formerly Infigen Energy) covering 60% of the output of the project. The second one signed was with Aldi and covers roughly 20% of our output. The Aldi PPA is the first “corporate PPA” we have signed. We were very pleased to see that Aldi reached their target of operations being powered by 100% renewable energy which they announced a few weeks ago. This was 6 months ahead of their original target.

Not unusually in Australia, grid connection appeared to take longer than perhaps anticipated given that all the turbines were installed by early this year. Were there any unique issues in relation to full commissioning/ AEMO accreditation?

A.Y. Apart from the length of time it took, the commissioning and accreditation process actually went pretty smoothly. We had four main “hold points”, and the total process took about 30 weeks, so more than 8 weeks per hold point. That is a lot longer than it has taken us in the past. But we worked our way through it all and are very happy to be generating at full capacity.

How will the Collector Wind Farm be investing back into the local community?

A.Y. We are very pleased that we were able to provide 150 full time jobs through the construction period of the Collector Wind Farm which was predominantly through a pandemic. We will also be investing $270,000 annually into local community development projects throughout the lifespan of the wind farm.

RATCH has built a strong presence in the Australian industry since entering the market in 2011 to now have 10 generators under its belt. The company must see Australia as a good long-term market to do business in?

A.Y. Our Parent Company is the RATCH Group based in Thailand, and they are very supportive of our business here in Australia. We have built or invested in projects worth more than $A1.3 billion over the past 5 years, so it’s a big level of commitment from them. They are also supporting us with new development projects to help drive further growth for our business. We are still investing in the development of wind and solar projects, hopefully we’ll be able to push the next project or projects into construction next year.

RATCH Australia also has interests in 3 gas-fired generators. Do these sit comfortably alongside renewable energy projects in your generation portfolio?

A.Y. As a business we don’t have a mandate to target one specific type of generation. We own three gas plants that have been in service for a long time and play an important role as shoulder/peaking generators in the energy market. All of our growth has been in renewables, consistent with what has been occurring around the whole of the NEM. And all of our development investment is in renewable projects, because that is where we see all of the growth in generation coming from.

With one solar farm at Collinsville in Queensland, are wind farms RATCH’s preference?

A.Y. No, there’s not really any preference for us between wind and solar. There are pros and cons to any type of technology but we are comfortable with wind and solar and are still investing in both. We’ve achieved good success with some of our wind developments, but we are working on some great solar developments at the moment now and our next project is likely to be one of them.

Does RATCH Australia intend to take a break for the time being or are you working on other development projects?

A.Y. There won’t be any real break for us, we are still pushing hard to progress new developments so we can continue our growth. There will inevitably be a bit of time until any of our next projects are ready to go, but that time will be helpful for us anyway. It will give us time to properly bed down the new projects that we have, to refine and improve some of our systems and processes, and to focus on lessons learned from the recent projects and make sure we apply these lessons on our next projects.

How do you see the future of the Australian industry? Any particular issues to keep an eye on?

A.Y. It is a really interesting time in the energy industry at the moment. The forces that have driven growth are changing again. We have a situation where NEM demand is flat, or arguably going backwards given the presence of domestic rooftop solar. But we still have consensus around forecasts showing really strong growth in the rollout of renewable generation. Obviously the rollout of this new generation will be driven by the retirement of existing generation assets, but when and how they retire and when and how they get substituted with renewables is still subject to a lot of speculation. If you add into that mix the expectations around storage technologies, hydrogen production and grid connection uncertainty, you end up with a very challenging industry to predict. But we believe that in one way or another, top quality wind and solar projects with strong grid connections and predictable nearby energy loads will continue to find a place within the market, and that is why we are still investing in their development.

 

An old construction delivery model making a comeback

The usual model by which owners construct utility-scale renewable energy projects, wind and solar farms, in Australia is by using an Engineering, Procurement and Construction (EPC) model. However with the market maturing there has been a revival of an older alternative, called here the “split contract” model.

A split contract model was used to construct the recently completed Biala Wind Farm in NSW, and may have applications for solar farm project owners given some of the issues and significant problems we have seen in the solar EPC sector.

AltEnergy asked AECOM’s Team Lead and Principal Engineer Angela Rozali to walk us through the key differences between the EPC and split contract construction models, and assess if the latter could be successfully applied to the construction of both wind and solar farms.

Angela Rozali: Split contract versus EPC models

There is a revival of the “split contract” model in the wind industry as owners seek an alternative to the traditional Engineering, Procurement and Construction (EPC) model. In the split contract model used at Biala Wind Farm, NSW, the owner separately contracted the civil balance of plant (BOP), electrical BOP and wind turbine supply & installation.

This contract model differs from the usual EPC model where a single contractor wraps all supply, installation, construction and commissioning scope in a single ‘turnkey” contract. The EPC model is well understood in the Australian market to provide comprehensive transfer of risk to the contractor – in particular overall plant performance risk and the construction and commissioning civil, electrical, wind turbine and grid connection interface risk. The EPC contract model has been the renewable energy industry standard in Australia and has often been a default prerequisite of project financing.

Split contracts have been used before in Australia for the construction of large-scale wind farms including Crookwell 2 recently and a number of the earlier developments by Pacific Hydro and Hydro Tasmania. There are multiple ways a contract may be split, the simplest of which is a two contract model which splits the BOP from the wind turbine supply and install. 

Historically, split contracts have been considered less bankable than EPC contracts and hence rarely if ever secure project finance in Australia. But with a growing number of split contracts being used in the local market and increasing confidence in this model, things are changing. Some of the advantages of a split contract model over a traditional EPC model include:

  1. Owners can save millions of dollars by accepting some interface risk, managing the contracts themselves.

Every EPC contractor calculates and allocates contingency for interface risk differently, but it will often be more than double the cost it would take for the owner to effectively manage this risk in performing the project management and contract administration.

  1. Owners can also save money from increasing competition in the market

Initially, it requires additional work for the owner to procure an Original Equipment Manufacturer, BOP contractor and potentially project management team. Yet, it also means owners can create a more competitive and efficient procurement process by reducing uncertainties early on through selection of an OEM and obtaining the BOP contractors’ price.

  1. Some owners are more prepared to manage their project.

EPC contracts can be taken for granted because it is often assumed that “all” the risk is transferred to the contractor and gives the impression an owner can be more hands-off. However, there are always risks that remain with the owner and risks that cannot be fully compensated with liquidated damages. EPC contracts, however comprehensive the contractual risk transfer, still require active management to minimise risk to all parties and avoid protracted and costly disputes.

  1. Owners have greater visibility and negotiation power over issues that may arise.

One of the characteristics of an EPC contract is that you have a single point of responsibility but that in turn can reduce the owner’s visibility and options to negotiate. That said you could be exposed to more issues, however you can prepare for this. If an issue arises, the owner may find themselves on the outside looking in, while the EPC contractor manages the issue amongst its subcontractors. Meanwhile this can lead to program delays that do not appear justified. With a split contract, the owner has more visibility of more key contractors and can offer incentives, negotiate or use the contract to more directly address issues. This power to directly influence the contractor is unencumbered by the EPC lead’s own agenda, program float and management of their own contracts with the subcontractors.

 

Could split contracts be used for solar farm construction?

Is there an opportunity for the split contract model to be useful in the construction of solar farms particularly with large players discontinuing EPC activities? Owners can already have solar photovoltaic (PV) module and inverter supplier contracts separate to the EPC contract. However, this is still not considered a variation of split. So let’s test the following points:

  1. Split contracts can bring out the best in every contractor.

If you are good at designing and laying cables, then stick to your area of expertise. If you know nothing about roads, then stick to your area of expertise. In this way, contractors can price their risk differently and more cost effectively. The key for the owner is splitting the contract in the correct way that suits the project and understanding who is best placed to carry certain risks or share risks. However, who could be the solar equivalent of the wind turbine supply and install contractor? 

The reason why wind turbines are separate from the electrical balance of plant is that it is an off-the-shelf product that connects into the balance of plant, whereas no one company provides both the solar PV module and inverter as the generator.  Could a model exist where an inverter vendor subcontracts out the solar PV modules and the installation? The individual parties exist in the market but would inverter and PV module suppliers take on the other party’s risk?

  1. Who would own the grid connection risk?

Grid connection risk has been one of the main reasons why large EPC contractors have left the solar industry. In my opinion, inverter manufacturers are better placed to take on this risk given they own the grid connection model and have the capability to meet the grid connection requirements.

Should the inverter manufacturer accept the grid connection risk, could the owner obtain enough protection from the contract? These days balance of plant components are making up to 50 percent of the total capital costs whilst the solar PV modules and inverters make up the rest.  Would the owner be limited by the total amount of liquidated damages it could gain as a percentage of the contract price due to inverters making up a small portion of the total capital value of the project? Given lenders focus on this ability and security provided by the contractor– the numbers may not stack up.

 

Personal bio

Angela Rozali has developed a strong presence in the fields of renewable power project development across the APAC region. Driving this is honed experience in multiple large scale wind farm projects in Australia, Antarctica and the Philippines where she has led in project management, contract administration, owner’s engineer, design and review capacities. She has complete end to end experience covering the entire project development cycle from feasibility through to operations and maintains a commitment and oversight on all stages of her projects. She is proud to be currently working on the construction of Biala Wind Farm administering a split contract model involving three main contractors and integrating it into the existing Gullen Range Wind and Solar Farm. She is in a unique position to be the project manager, contract administrator and owner’s engineer for this project. Combining her technical rigour with an open and collaborative approach she promotes best-for-project outcomes. Angela is an active member of the CEC community, participating in the Wind Directorate and Energy Storage Working Group.

 

Company bio

AECOM is the world’s premier infrastructure consulting firm — planners, designers, engineers, program and construction managers driven by a common purpose to deliver a better world. On projects spanning transportation, buildings, water, energy and the environment, our public- and private-sector clients trust us to solve their most complex challenges. Whether it’s improving your commute, keeping the lights on, providing access to clean water or transforming skylines, we believe infrastructure has the power to uplift people and communities.