Denham Capital Management LP, a $7.3 billion U.S. private equity fund focused on mining and energy, has invested $75 million in wind power in Australia, where generation from windmills has become cheaper than coal.
The Boston-based fund invested in 1 gigawatt of wind projects developed by Enersis Group’s Australia unit, National Power and Kato Capital Pty Ltd., Denham Managing Partner Scott Mackin said by phone. Together the companies formed Sydney-based OneWind Australia to focus on wind-farm development and financing as part of the deal, Mackin said.
Denham is seeking to gain from the falling cost of producing power from new wind turbines as fossil-fuel electricity becomes more expensive because of high domestic gas prices, charges on carbon emissions and rising financing costs. The technology’s improving economics has boosted opportunities for companies including manufacturers Vestas Wind Systems A/S (VWS), Suzlon Energy Ltd. (SUEL) and U.K. developer Wind Prospect Group Ltd.
“Wind energy is now cheaper than new build fossil-fuel generation in Australia,” Mackin said by phone. The company plans to sign loans for phases of the developments later this year or early next year with the first project operational in 2015, he said.
Electricity can be supplied from a new wind farm in Australia at a cost of A$80 ($82) per megawatt-hour, compared with A$143 a megawatt-hour from a new coal-fired power plant or A$116 from a new station powered by natural gas when the cost of carbon emissions is included, according to a Bloomberg New Energy Finance report published Jan. 31.
Policies embraced by Prime Minister Julia Gillard’s government to sell natural gas to the priciest market and tax carbon emissions have made wind more competitive, spurring interest from companies including Chinese turbine maker Xinjiang Goldwind Science & Technology Co. Australia plans to get 20 percent of its electricity from renewable energy by 2020.
The OneWind Australia portfolio includes the 100-megawatt Glen Innes venture, the 250-megawatt Lincoln Gap project and Cattle Hill, a 240-megawatt facility. The three have a total cost of about $800 million to be met with about 75 percent debt, according to Mackin.
Denham, which announced it opened offices in Perth in November to tap metals and minerals opportunities, is studying other markets where wind is competing with fossil fuels.
It plans to bid in electricity auctions in Brazil through its local Rio Energy unit and will boost developments in South Africa as the nation struggling to meet demand embarks on a renewable energy program to curb reliance on coal.
The fund is also examining wind and solar in sub-Saharan Africa, Mackin said.
The deal announced today is subject to procedural closing conditions, according to Denham. Michael Toke, who most recently held the post of chief executive officer at California-based Cannon Power Group, will be managing director at OneWind Australia, Mackin said.
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