Fea­ture

Transalta

The Australian Energy Review - - FRONT PAGE - El­iz­a­beth Fabri

ON 28 July, Transalta be­gan com­mer­cial op­er­a­tion of its long-awaited 150 megawatt (MW) South Hed­land Power Sta­tion fol­low­ing a two and a half year build.

The Pil­bara com­bined-cy­cle nat­u­ral gas gen­er­a­tion fa­cil­ity is a huge boon for the re­gion, and is con­tracted to de­liver 110MW of power to Hori­zon Power’s com­mer­cial cus­tomers in the area as well as 35MW to Fortes­cue Met­als Group (FMG) port op­er­a­tions, un­der two, 25-year power pur­chase agree­ments (PPA).

“we knew THAT This [re­pur­chase Of SOLOMON] was A risk given fmg’s fi­nan­cial sit­u­a­tion has strength­ened Tre­men­dously Over The past few years AND They have been ex­e­cut­ing On Their strat­egy TO in-source Across Their Op­er­a­tions.”

How­ever, the mile­stone was quickly over­shad­owed by an FMG state­ment days later that the project had “not yet sat­is­fied the req­ui­site per­for­mance cri­te­ria” un­der its con­tract.

In re­sponse, Transalta claimed the terms of its power pur­chase agree­ment (PPA) had been met in full, from re­ceiv­ing a com­mer­cial op­er­a­tion cer­tifi­cate, suc­cess­fully com­plet­ing and pass­ing cer­tain test re­quire­ments, and ob­tain­ing all per­mits and ap­provals re­quired from the North West In­ter­con­nected Sys­tem (“NWIS”) and gov­ern­ment agen­cies.

“The South Hed­land Power Sta­tion is fully op­er­a­tional and able to meet all of FMG’S re­quire­ments un­der the terms of the PPA,” Transalta stated.

That same day, FMG sep­a­rately an­nounced it would be re­pur­chas­ing Transalta’s 125 (MW) Solomon Power Sta­tion; a right it had un­der a PPA signed with Transalta in 2012.

While not the pre­ferred out­come for Transalta, the $US335 mil­lion price tag would boost its bal­ance sheet in the short term and al­low it flex­i­bil­ity to pur­sue growth projects in Aus­tralia and abroad.

Transalta’s Aus­tralian op­er­at­ing as­sets cur­rently com­prised Solomon Power Sta­tion; South Hed­land Power Sta­tion; South­ern Cross En­ergy project, made up of four open cy­cle power sta­tions in Kam­balda, Mount Keith, Le­in­ster and Kal­go­or­lie; a 50 per cent stake in 270km Fortes­cue River Gas Pipe­line with part­ner DBP Devel­op­ment Group; and a 50 per cent in­ter­est in 120MW Parke­ston power plant in Kal­go­or­lie.

The com­pany has also plans to de­velop a 70MW large-scale so­lar farm in NSW.

Af­ter spend­ing the last 17 years at the com­pany’s Canada head­quar­ters, Transalta Aus­tralia’s newly ap­pointed man­ag­ing di­rec­tor Kelvin Koay said the Aus­tralian di­vi­sion had been a “ve­hi­cle for growth” for the com­pany par­tic­u­larly in the last five years, and he was pleased the per­for­mance of each project.

“With South Hed­land com­ing into com­mer­cial op­er­a­tion last month [July] and the rest of the busi­ness per­form­ing as good as or bet­ter than fore­casted, our out­look for the year is in-line with our ex­pec­ta­tions,” Mr Koay said.

The com­pany’s Aus­tralian gas pro­duc­tion in­creased for the three and six month pe­ri­ods end­ing 30 June by 27 per cent and 17 per cent re­spec­tively, com­pared to the 2016 cor­re­spond­ing pe­ri­ods.

“My goals for the Aus­tralian op­er­a­tions is con­tinue to add to our port­fo­lio of highly con­tracted as­sets and en­sure the busi­ness ab­sorbs the growth that we have ex­pe­ri­enced in an ef­fi­cient and sus­tain­able way, most re­cently be­ing South Hed­land Power Sta­tion,” Mr Koay said.

“We now have ap­prox­i­mately 110 peo­ple em­ployed here in Aus­tralia but that num­ber will go down slightly af­ter the Solomon Power Sta­tion is tran­si­tioned back to FMG by the end of the year.”

Solomon

The Solomon Power Sta­tion has been a promis­ing growth project for Transalta since it was pur­chased from FMG in 2012 for $US318 mil­lion.

How­ever, as part of the 16-year PPA it signed with FMG to pro­vide power to its nearby iron ore op­er­a­tions, the miner had the right to re­pur­chase the project and ter­mi­nate the ar­range­ment at any given time.

On 1 Au­gust, FMG an­nounced its in­tent to re­pur­chase the plant from Transalta sub­sidiary TEC Pipe, and re­gain con­trol of the op­er­a­tions from Novem­ber.

The de­ci­sion was no shock to Transalta, given FMG’S mar­ket cap­i­tal­i­sa­tion gains in re­cent years.

“We knew that this [re­pur­chase of Solomon] was a risk given FMG’S fi­nan­cial sit­u­a­tion has strength­ened tre­men­dously over the past few years and they have been ex­e­cut­ing on their strat­egy to in-source across their op­er­a­tions,” Mr Koay said.

“The de­ci­sion by FMG to ex­er­cise its re­pur­chase op­tion be­came in­evitable as they de­ter­mined that in­te­grat­ing the plant would lower their fi­nanc­ing costs and in turn, lower their iron ore unit costs.”

Transalta said it would con­tinue to work with FMG dur­ing the three-month tran­si­tion, and gross pro­ceeds from the re­pur­chase would be used for fu­ture growth op­por­tu­ni­ties, and to re­pay the credit fa­cil­ity used to fund the devel­op­ment of South Hed­land power sta­tion.

South Hed­land

While the dis­agree­ment with FMG over South Hed­land Power Sta­tion not meet­ing re­quire­ments of its con­tract was yet to be re­solved, the news has not damp­ened Transalta’s out­look.

With com­mis­sion­ing of the project now com­plete, Mr Koay said the project was ex­pected to con­trib­ute sig­nif­i­cantly to the Aus­tralian busi­ness.

The 25-year PPA’S signed with Hori­zon Power and FMG were ex­pected to con­trib­ute about $80 mil­lion of EBITDA each year.

“We want to en­sure the plant de­liv­ers re­li­able power to our cus­tomers and they can en­joy the eco­nomic ben­e­fits associated with the fa­cil­ity,” he said.

“South Hed­land is the most ef­fi­cient power sta­tion on the NWIS [North West In­ter­con­nected Sys­tem] and we hope that it can be a plat­form for fur­ther growth in the Pil­bara for both ex­ist­ing and fu­ture cus­tomers.”

In its sec­ond quar­ter report Transalta said, it be­lieved all con­di­tions to es­tab­lish com­mer­cial op­er­a­tions had been sat­is­fied un­der the terms of the PPA with FMG.

“We con­tinue to con­fer on the is­sue with FMG,” Transalta stated.

Hori­zon Power has cho­sen not to com­ment on the is­sue.

WA En­ergy min­is­ter Ben Wy­att said the new power sta­tion was a big win for the Pil­bara to de­liver re­li­able fuel-ef­fi­cient en­ergy and boost jobs in the re­gion.

“This com­bined-cy­cle gas power sta­tion will pro­vide es­sen­tial en­ergy sup­ply for the rapidly grow­ing Pil­bara re­gion un­der an in­no­va­tive pri­vately funded de­liv­ery model con­structed un­der an agree­ment be­tween the State Gov­ern­ment, Hori­zon Power and Fortes­cue Met­als Group,” Mr Wy­att said.

Growth op­por­tu­ni­ties

With funds soon to be made avail­able through the sale of Solomon, Transalta is in a po­si­tion to pur­sue other growth projects, and make its en­trance into the Aus­tralian re­new­able in­dus­try.

The com­pany is cur­rently de­vel­op­ing a

“goon­um­bla will be Our first re­new­ables PROJECT in AUS­TRALIA AND it will ben­e­fit from Our ex­ten­sive re­new­ables ex­pe­ri­ence in north Amer­ica.”

$160 mil­lion so­lar farm project in NSW, Goon­um­bla, which is ex­pected to come on­line mid-2018.

“Goon­um­bla will be our first re­new­ables project in Aus­tralia and it will ben­e­fit from our ex­ten­sive re­new­ables ex­pe­ri­ence in North Amer­ica,” Mr Koay said.

With an ini­tial ca­pac­ity of 70 megawatts, the project will gen­er­ate up to 168,000 MW of clean elec­tric­ity per year; enough en­ergy to power 28,000 homes and save up to 141,000 tonnes of green­house gas emis­sions each year.

The Goon­um­bla so­lar farm would be lo­cated ad­ja­cent to the pro­posed Parkes So­lar Farm, which was also ap­proved by the NSW Depart­ment in 2016.

Transalta has en­gaged a tier one en­gi­neer­ing, pro­cure­ment and con­struc­tion (EPC) con­trac­tor to un­der­take the con­struc­tion and op­er­a­tion and main­te­nance and said it was cur­rently se­cur­ing off­take agree­ments.

In ad­di­tion, My Koay said the com­pany was look­ing at other re­new­able sources and nat­u­ral gas projects in Aus­tralia.

“We see many op­por­tu­ni­ties in the Aus­tralian mar­ket, es­pe­cially as re­new­ables tech­nol­ogy be­come more and more eco­nomic,” he said.

“We will main­tain our dis­ci­pline when eval­u­at­ing these op­por­tu­ni­ties and only de­ploy cap­i­tal to projects that fit with our strat­egy.

“I ex­pect we will land a re­new­ables project rel­a­tively soon which will be very ex­cit­ing for the team and gives us a fur­ther op­por­tu­nity to lev­er­age the ex­pe­ri­ence we have in other parts of Transalta.”

All im­ages: Transalta.

Parke­ston plant in Kal­go­or­lie.

the Parke­ston project.

the South hed­land Project has be­gun op­er­a­tions.

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