Case studies Publication Date 2 November 2021 Published 2 Nov 2021
NAIF Conditional Loan for Kidston Pumped Hydro
The Kidston Pumped Storage Hydro project is the first pumped hydro energy storage scheme globally to be developed in an abandoned gold mine. The giant battery located in Kidston, Far-North Queensland will pump water uphill when energy is abundant during off peak periods and releasing it to create power in times of peak demand.
The Kidston project is supported by NAIF’s 15-year concessional loan of AUD610m (USD475 million) - debt finance.
Genex will provide AUD120 million (USD93 million), including AUD25 million (USD19.5 million) investment by J-Power - equity finance.
- Project undertaker: Genex Power Limited
- Funders: Northern Australia Infrastructure Facility (NAIF) & Australian Renewable Energy Agency (ARENA)
- Off-take buyer: EnergyAustralia
- Equity parter: J-Power
- Performance approver: AEMO
- The remote location of the project leads to exponentially higher costs compared to a development closer to major urban centres due to:
- Higher construction costs
- Higher costs incurred in accommodating and fly-in fly-out workforce
- The significant cost of the required transmission infrastructure
- Seeking financing and funding through private investment and capital raising for a project cost of approximately AUD610 million is extremely difficult.
- NAIFs concessional loan is subject to a number of conditions precedent including the finalisation of all other aspects of financing and agreements with construction contractors and operations and maintenance providers.
Results and impact
- NAIF’s conditionally approved project loan catalysed interest in the project. It helped Genex secure other support for the project, including:
- Off-take Energy Storage Services Agreement (ESSA) with EnergyAustralia which will guarantee 30 years of locked-in revenue which will enable Genex to provide returns to shareholders and repay the NAIF loan
- An equity investment agreement with J-Power of Japan (which was simultaneously contingent on federal funding).
- The project is forecast to contribute AUD343 million (USD267 million) in net public benefit to the regional, state and national economy and community including AUD235 million (USD183 million) direct value add for Far North Queensland. Benefits include:
- Wholesale market energy cost savings estimated at a present value of AUD500 million (USD389 million)
- Wmission savings
- Reliable, on demand electricity
- The project will provide 250MW of firm, dispatchable energy, improving renewable energy reliability while lowering transmission losses and electricity prices. The additional source of peak generation capacity will lead to lower average wholesale power prices which would flow to end users through the competitive retail power market. These outcomes will help increase market share of renewable generation.
Key lessons learnt
- The approval for a concessional loan was sufficient to overcome financing difficulties as a result of the remote location of the project, and helped with offtake coordination. The approval for the loan created confidence in the project which attracted investors and helped secure other financing and funding sources for ex. the J-Power equity investment.
- Potential precarious domino effects: EnergyAustralia’s request to renegotiate the initial ESSA proposal could have had a negative domino effect, jeopardising finance arranged with NAIF, and as a direct result, putting J-Power’s investment at risk, which caused Genex to halt securities trading. When NAIF extended its financing opportunity to June 2020, the funding stack was reassembled which led to EnergyAustralia’s signing of the ESSA in March 2020.
- Like other NAIF projects, and other public programs provided like co-funding from the Queensland Government, subsidy support for the project was provided alongside other financing and funding mechanisms to shore up long term revenue.