Quinbrook Infrastructure executives discuss challenges in renewable project development; next growth plans
Quinbrook Infrastructure Partners investment thesis for the US renewable power market came earlier than most when in 2017 it acquired both energy storage developer GlidePath Power Solutions and utility scale wind developer Scout Clean Energy, both start-ups at the time.
It then launched Primergy Solar LLC in 2020 to gain an entrant in utility scale solar and storage markets, recruiting Ty Daul out of Recurrent Energy to run the platform. Primergy is now on the verge of launching its first project, the 1 GW solar + storage project, Gemini, in the Nevada desert as its already named contractors and is nearing financial close.
As Quinbrook looks to grow its next generation of renewable strategies, such as green data center hybrid Rowan and UK-based energy storage technology developer Habitat, the firm’s Australian-based founder David Scaysbrook and the firm’s Houston-based renewables executives Hank Jones and Shalini Ramanathan sat down with NPM to express their views on the issues facing solar and onshore wind developers today and what comes next for the firm.
Scout has more than 1.2 GW of renewable projects in operation in PJM, CAISO, ERCOT and SPP and over 12 GW of active pipeline in development, while GlidePath has more than 3 GW of battery storage projects in operation and under development.
A pipeline of Scout’s size is hardly an anomaly as it competes with corporates such as Invenergy for wind projects, and the Ares Management-led consortium that enacted a takeover in October 2021 of Apex Clean Energy. As reported exclusively by NPM, Quinbrook has hired bankers to explore its options on Scout, to see if it can secure an exit particularly as the buyside remains heavily invested in acquiring renewable developers.
Scaysbrook believes the accelerated deployment of solar and wind projects at this point has reached a breaking point of sorts as illustrated by PJM recently putting a two year stay on new projects being registered in the interconnection process, while PPA pricing has gotten choppy as of late and in some instances, uneconomic.
The overall US project pipeline has “become increasingly undifferentiated and commoditized” from the perspective of the developer,” said Scaysbrook, adding that too many “wind and solar farms” are trying to interconnect in the same locations.
“The rapid buildout of this new capacity has unintended consequences,” continued Scaysbrook adding that “projects are evaluated individually by each sponsor and they may appear feasible but in the aggregate when competing against so many other projects, are unforeseen adverse impacts of power price formation in many markets which can drive equity returns to zero.”
“ERCOT (aside from all other ISOs) has the advantage in terms of manageable development burdens and a lot of economic activity,” said Shalini Ramanathan, a director with Quinbrook, and former senior vice-president of origination at RES Americas.
The Build Back Better Act, if approved in its current form, would extend the PTC tax credit for wind and the ITC tax credit for solar out another five years, plus introduce an ITC tax credit for standalone storage. Scaysbrook believes a potential greater benefit from the BBB Act was to stimulate the manufacturing of more US renewables equipment and the establishment of alternate supply chains, not further financial incentives for solar and wind developers, particularly given how low the cost of these projects have become.
“In our view, the tax incentive extensions offered in BBB are certainly welcome but should not be regarded as necessary to drive ongoing investment. The one exception would be the direct pay proposals which would alleviate a major constrain on the limited availability of tax equity finance,” adds Scaysbrook.
The PPA market has also been evolving as the availability of longer-tenured utility-scale PPAs has started to shrink, while shorter-tenure corporate PPAs have started to proliferate. That is not helpful for equity financing. At the same time, data centers represent a new class of corporate buyer of renewable power at scale.
“There has been a noticeable shift in project friendly terms, given the demand for good assets to deliver power on time,” said Ramanathan.
The project finance market, which had relied for so long on a non-recourse project finance loan followed by a longer-tenured private placement structure, has also had to adjust to this new reality.
“Lenders and investors are taking a conservative approach in terms of underwriting criteria and are placing value on capital payback period that falls within contract terms,” said Hank Jones, a managing director at Quinbrook and formerly chief commercial officer at Dynegy.
Evolution
Quinbrook closed out 2020 forming a joint venture with Birch Infrastructure, called Rowan, to develop sites for next generation hyperscale data centers powered by renewables supplied by Quinbrook. In November of 2021, it also acquired UK-based Habitat Energy Ltd, an optimization and trading platform for grid scale storage.
Rowan presently has 20 sites across the US predicated on powering new green data centers with 100% renewable power resources. They have signed contracts for 240 MW and their first campus in Texas will be operational in July this year.
Rowan is a specialist renewable solutions provider to larger data center property owners such as Cyrus One, now owned by KKR and Global Infrastructure Partners, and larger users of data, such as Google, which also build their own data centers. All of Rowan’s customers are invested in utilizing renewable resources to power their growing footprint.
“The real test will be how much we sign up (in terms of customers) and over what period of time,” said Scaysbrook, adding that the platform takes a new perspective, led entirely by offering price competitive, renewable power solutions to the entire data center industry across colocation and hyperscale operators.
“There are quite a few owners of co-location data centers that want to partner with Rowan to access net zero sites for next generation green data centers,” said Scaysbrook.
Habitat’s goal, like several other energy storage optimizers is to make sure “dispatchable power assets can be algorithmically optimized eventually replacing human power traders,” added Scaysbrook. Habitat with its quality of data scientists and specialist power trading teams has consistently outperformed competitors in the UK.
The next steps for Habitat under Quinbrook’ s stewardship is to expand into the US and establish its competitive advantage starting with ERCOT.
Scaysbrook sees a very fertile market in the US particularly with the rise of battery storage, either on a standalone basis or co-located at solar sites.
*This story was originally published exclusively for NPM subscribers in March.
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