Eco plan a $1bn windfall for BBW

The Australian
December 17, 2007

BABCOCK and Brown could bring $1 billion worth of new wind energy projects on stream in Australia following the Rudd Government's commitment to having 20 per cent of energy use in the form of renewable energy by 2020. The chief executive of Babcock and Brown Wind Partners, Miles George, said this could involve 500 megawatts of new wind energy projects around Australia, where development had been put on hold because of uncertainties about the federal Government's energy policies.

"Babcock and Brown has developments in Australia which have effectively been put on hold because of the hiatus in federal government policy over renewable energy," Mr George said in an interview with The Australian. "The company has leased sites all around Australia which are likely to be revisited now there has been a change of government." At the moment, wind energy represents only about 1 per cent of Australian energy use.

Mr George said the Rudd Government's renewable energy targets could see a tenfold expansion of the wind energy industry in Australia by 2020. He said Babcock and Brown Wind Partners, Australia's largest wind farm operator and the fourth-largest in the world, was expecting to double the size of its business over the next few years. "We are adding around 1000 megawatts a year to our total portfolio and would expect to double the size of the business over the next two or three years," he said.

BBW has 68 wind farms around the world - in Australia, the US, Spain, Portugal, Germany and France. In Australia, it has wind farms in Mount Gambier in South Australia and Geraldton, in the West Australian midwest, with plans for another near Canberra. Mr George said the company's expansion would be stimulated by the fact that Australia was finally catching up with the rest of the world in terms of its policy in encouraging renewable energy.

Wind energy is considered the most economically viable of all the renewable energy options: it is several times cheaper than solar power and environmentally more acceptable than hydro projects. BBW, which listed on the ASX in October 2005, has failed to excite much interest among Australian institutions. Listing at $1.40 a share, it was trading above $1.80 a share this week but its growth has been less than other resource and energy stocks.

However, Mr George said he hoped the change in federal government policy and the evolution of the wind energy business around the world would lead to an increased interest in the company by Australian fund managers. He said the listing of the Spanish-owned Iberdrola Renewables, the world's largest owner of wind energy plants, on the Madrid Stock Exchange this week should help build more institutional interest in the industry.

"It's a good thing for us as it will be the first time we have had a major wind energy business in the listed sector which is comparable for our stock," he said. "The wind industry here is relatively small. In Europe and the US it is much larger and better understood." The $22 billion Iberdrola Renewables has a capacity of 7000 megawatts of installed capacity of wind energy, compared with the total 2400 megawatt capacity operated by BBW.

Mr George said Australia represented only about 15 per cent of the company's installed capacity because of the Howard government's on-again, off-again policy towards renewable energy. It set a target of 9500 gigawatt hours of renewable energy with a scheme announced in 1999, stimulating the development of the wind energy industry in Australia but it stalled when the government failed to renew the targets in 2004.

The Rudd Government's target of 20 per cent by 2020 amounts to a range of 45,000 gigawatt hours of energy - much of which will be supplied by wind energy. BBW has about 40 per cent of the 800 megawatts of installed capacity of wind energy in Australia. "The Rudd Government's target has the potential to increase installed capacity by about tenfold to about 8000 megawatts by 2020," Mr George said.

He said the introduction of a carbon emissions trading scheme next year would further boost the cost attraction of wind energy. Moves towards cleaner coal would also make wind energy more relatively economic. The Australian wind energy industry only has a small number of players, including Babcock and Brown, Pacific Hydro and Hydro Tasmania. The Transfield Services Infrastructure Fund entered the industry when it spent $460 million last month to buy the wind energy assets of the Queensland Government.

Babcock and Brown, which had its origins in San Francisco, has been in the wind energy business for more than 20 years, stimulated by tax incentives for wind energy in the 1980s given by the government of California. It expanded its operations into Australia following the Howard government's initial renewable energy incentive scheme in 1999. Mr George said BBW had a strong pipeline of wind farms under development for it by Babcock and Brown as well as two companies in Europe.

He said this meant it did not have to pay high prices in expensive bidding wars for new capacity. While there would be further expansion in Australia, he said, the US was the fastest growing market for wind energy and would soon become the biggest in the world, overtaking current leader Germany. "It's a great thing that the Labor Government is now introducing policies to encourage renewable energy," he said. "The industry will be reinvigorated. "We are the fourth largest (wind energy) company in the world and we are sitting in a country which doesn't support renewable energy. The last couple of years have been a difficult period for us but, going forward, it will be much more positive."