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Australian solar financing is “at a tipping point”, with a host of factors pointing to a boom in a recently beleaguered sector.

The past 12 months have seen a deluge of debt finance pour into large-scale solar projects Down Under, enticed by falling costs and a favourable political environment.

Gloria Chan, the head of large-scale solar at the state-owned lender the Clean Energy Finance Corporation (CEFC), tells GTR that projects are now attracting interest from commercial banks and contractors, eager for a slice of the pie in one of the world’s sunniest countries.

“Twelve months ago there were still no projects financeable on a commercial basis. Now we’ve financed 10projects worth A$370mn in debt finance, with 400MW of total AC capacity, and about A$900mn of project value. Commercial banks can look at it and say: ‘It works with the offtake agreement put in there.’ We’re at a tipping point for large-scale solar in Australia to become readily financeable,” she says.

Large-scale solar in Australia is, strangely given the weather, a relatively new thing in Australia, where the economy remains dominated by fossil fuel industries. But after being effectively defanged by the previous government of Tony Abbott, the CEFC has enjoyed a new lease of life over the past two years.

And why not? Experts claim that solar power can compete with gas on price now in Australia. The price of solar panels and other equipment is falling continually, as Chinese manufacturers look to a volume game, production-wise, to accommodate the large solar programmes in countries like the UK, US, India and now Australia.

Meanwhile, EPC contractors are being tempted into an industry which was previously perceived to be volatile and subject to government whim. The French company Bouygues, for example, has been an early mover, being enlisted to build three solar projects (with funding from the CEFC in New South Wales). Competition in the EPC industry is also helping to drive overall costs down.

The deal flow

In March, a syndicate of commercial and state-owned lenders contributed A$230mn for two solar farms in Queensland and one in Victoria, which will be operational by the first quarter of 2018. This represented the largest project financing in the solar sector to date and is a good indication of the internationalisation of the sector.

Commonwealth Bank of Australia (CBA), NordLB and CEFC were the lenders on the deal. The borrowers were Australian renewable energy developer Edify Energy and the German solar investor Wirsol.

The Queensland solar farms will be on the Whitsunday Islands and will have a generating capacity of 138MW. The Victoria farm is to be in Gannawarra and will have a capacity of 60MW. It marks the first foray into Australia for Wirsol, a renowned solar investor in Europe.

Other commercial lenders to have ventured into the space include Société Générale, BTMU and SMBC, as well as local banks ANZ and Westpac.

“It’s got loads of space, loads of sun, the fiscal returns are probably about half what they are in the UK, but when you put it all into a pot and mix it up you come back with about the same return, a stable economy and a government legislation that is supportive of renewables and the public have become more supportive of renewables as well. Solar is on the verge of delivering power comparable to coal now,” Wirsol’s managing director Phil Hogan tells GTR.

Hogan cites the support from CEFC and the Australian Renewable Energy Agency (Arena) as being pivotal to the sector’s development. He says that the company is looking to add a further 500MW to its Australian facilities and that it will continue to work with commercial banks.

Chan says that there are “quite a few projects that can be financed commercially” in the pipeline. Corporations are now looking to take out their own power-purchase agreements (PPA) to capitalise on the low cost of solar energy at a time when retail power prices are skyrocketing.

Meanwhile, for those projects that lack a PPA and may struggle to attract 100% commercial financing, the CEFC is equipped to step in.

“There’s also partially merchant [merchant projects are those without offtake power purchase agreements], or fully merchant type projects. They’re riskier for investors but we’re able to support the market with a fully merchant product which is helpful to enable more development in the industry,” Chan says.

It seems, at last, that common sense is prevailing in Australia’s solar sector. With ambitious renewable energy targets at state and federal level, the pipeline for projects and finance should remain strong, although the coal lobby there remains strong and, thus, the risk of a government flip flop remains in place.

It is, however, a far cry from a few years ago, when the CEFC was effectively shut down under Tony Abbott. It seems that for now, sunnier times are ahead.