Beyond energy project approvals: unlocking value for a future sale

Once your installation has been operational for a few years, you will have a ‘known’ asset to sell. You will be able to prove its operational characteristics, share earnings trends, match projected operational costs with actuals, and so forth. And in a world where net zero targets must be met – you are also offering an opportunity for investors to become part of the solution. A new investor will likely be someone looking to boost their ESG (environmental, social and governance) credentials or ‘green’ assets. They will be targeting a certain risk profile – one which may give away a little on the upside, but which comes with more certainty on the downside.

There is a good chance you will be negotiating with a superannuation fund. A fund looking for a long-term investment. So, what are some tangible ways to maximise the value of your energy asset and make it an attractive investment for a super fund in, say, 2035?

You will need to apply a financial model that straddles two things – long-term financial stability and a shorter-term balance between profit and risk. Take offtake arrangements as an example. Locking in a power purchase agreement (PPA) will give you a reliable income stream for the electricity you generate. You could sign a 10- to 15-year agreement guaranteeing the amount of money you’ll receive over those years. But it is likely less than you would receive from the spot market – where power supply and demand are matched instantaneously.

There is an appeal in signing a 10- or 15-year PPA at a set price to give comfort that you will make a minimum return on the capacity contracted. But what if the spot market is trading higher? Double? Triple? While less than certain, being able to capitalise on such opportunities could make your asset stand out. Negotiating arrangements that strike the right balance profit for your renewable energy and provide a measure of long-term security is key.

To ensure your asset is in top form come valuation day, you must have the proper software and technology to accurately monitor its performance (monitoring and control, or a SCADA system). Your buyer will want to know exactly what they are purchasing and have the operational performance data available as confirmation.

Often, the expected operation targets that you will initially rely on will not be 100 per cent accurate. They are generally formed from relatively short-term resource measurements on site (pre-construction) only giving an indication of what you may experience over the next three decades. And manufacturing specifications and prototype testing may have been completed in a different location to asset. It's therefore essential that you accurately collect data from day one of operation. Only then can you do the necessary modelling and analysis to understand the true capacity and projected lifespan of your project. To truly know what you are selling in terms of expected performance and remaining design life. And with that same monitoring technology, you are able to extract maximum value from your infrastructure by keeping on top of maintenance – and deciding when proactive measures will result in better economic outcomes than run-to-failure.

Finally, you must meaningfully engage with stakeholders and the community to make sure you have as smooth as possible approvals, construction and early operating process. Failure to manage stakeholders properly can lead to fines, compensation pay-outs and reputational damage. All will have a direct financial impact on your project. Plus, an asset associated with low community support will not be an attractive option for a potential future buyer.

It goes without saying that your engagement with stakeholders and the community is ongoing. Engagement is critical during the approvals process, but also critical during the build and operation phases as part of maintaining your social licence to operate and good governance. The value of community engagement (and existing relationships) will likely be a critical factor when a new owner starts to consider their decommissioning or life-extension options on the project.

The ongoing development of reliable, productive generation assets is vital for Australia's - and indeed the world's - energy transition. If you are looking to build one, or invest in one, doing your due diligence upfront can help maximise the value of your investment today, and decades down the track.