investor briefing

Date of lodgement: 20 January, 2005
Title: Investor Briefing – MD on Agreement to Build New Green Energy Projects
Record of Interview:
CapitalConnect
Today Green Pacific Energy Ltd (GPE) announced the signing of a Heads of Agreement
with Easteel Industries Ltd for the Engineering, Procurement and Construction (EPC) of two
13.5MW green waste to energy (WTE) plants. What are the key terms of this agreement?
Managing Director – Peter Gan
This is another significant milestone for the company in commercialising our portfolio of
green WTE projects. After an extensive tender process we have selected Easteel
Industries Ltd, a leading New Zealand engineering firm which has constructed many
projects of a similar nature in NZ. A turnkey agreement is being finalised, with only the final
price (capital cost of the two developments is capped at $A55M), plant efficiency and
schedule to be agreed. Construction is expected to commence by March of this year at two
sites in Stapylton, Queensland and Morwell, Victoria. First generation is expected by mid
2006. On completion we will have a portfolio of over 30MW of green electricity representing
more than $A17M of annual revenue, a solid start towards the target of 200MW.
CapitalConnect
What other key agreements do you have in place to ensure the successful roll-out of your
portfolio of projects?
Managing Director – Peter Gan
Late last year we reached an agreement with Viridis Energy Capital (VEC) with gives us an
option to sell GPE’s current and planned WTE plants to VEC as they are constructed and
successfully commissioned. We also have in place a $A100m debt facility with Investec
Bank. In addition, we are reviewing offers for export indemnity insurance which will provide
even greater flexibility in structuring the financing of these developments.
Our plants are certified by the Federal Government’s Office of the Renewable Energy
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Regulator (ORER) and by the Sustainable Energy Development Authority (SEDA),
ensuring that all of our output is eligible for the full range of available green credits.
Finally, we have secured long-term PPA’s with a major energy retailer and are concluding
long-term fuel supply agreements with a number of green waste providers.
CapitalConnect
What are the drivers of the company’s strategy to produce electricity from green waste?
Managing Director – Peter Gan
Green waste to energy is unique in the renewable energy market in that it addresses two
social needs, firstly the productive use of waste and secondly the production of clean
renewable energy. Our goal is to combine proven generation technology with a readily
available supply of green waste to produce electricity. No-one else in Australia is
successfully doing that.
Electricity from green waste is produced continuously, unlike electricity from wind or solar
generation. In Australia, energy retailers are obliged to source a percentage of their energy
purchases from renewable sources and, on our estimates, we are more economic than
wind or solar generated energy.
CapitalConnect
The company’s 3.5MW proof-of-concept plant in Stapylton, Queensland has been
operating for three consecutive quarters. How has the plant been performing?
Managing Director – Peter Gan
Given that it is a new biomass plant, we are pleased with the progress that has been made.
The two key issues for any generation plant are availability and capacity (i.e. how much of
the time the plant keeps running and what level of output it produces). We have resolved
the issues of keeping the plant on-line and we are now focused on pushing the plant to
produce to its maximum design level.
The capacity factor over the last three quarters has gradually improved from 30% to 70%.
We expect to reach a consistent operating level of 80-90% in the June and September
quarters of this year.
CapitalConnect
What are the key steps of processing green waste (branch trimmings, tree prunings or
municipal green waste) utilising fluidised bed combustion (FBC) technology? What lessons
has the company learnt since commissioning in March 2004?
Managing Director – Peter Gan
We secure green waste from transfer stations and landfills and then shred it and screen it
to produce fuel, which is fed into our FBC boiler. Steam produced in the boiler then drives
a conventional steam turbo generator.
The beauty of FBC technology is that it can efficiently use low quality fuel whilst producing
minimal emissions. GPE is the only company in Australia using green waste as a fuel in an
FBC boiler.
Since the proof-of-concept plant was commissioned, we have addressed issues in ash
removal and fuel handling that had previously restricted our ability to reach maximum
output consistently. Originally we removed bottom ash manually but for economic and
safety reasons have now decided to automate this process. Handling of green waste
presented more issues that initially thought and we have had to adjust our fuel handling
components to minimize blockages. These adjustments are currently taking place while the
plant is off-line for a short period.
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CapitalConnect
An important advantage of the FBC technology is the ability to run on a wide range of
materials. What has determined your primary fuel supply?
Managing Director – Peter Gan
GPE has chosen to use green waste as the primary fuel source because it is eligible as a
renewable fuel and is plentiful at the right price. Producing fuel from green waste also
provides a residue of ideal compost material which fits with the reuse strategy of
governments at all levels.
The type of green waste used for each site is really a locational issue depending on our
ability to secure long-term contracts. For example for our proposed Morwell site in Victoria
we are concluding agreements for municipal green waste from the greater metropolitan
Melbourne on the east side and industrial wood waste from a range of saw mills in the La
Trobe valley and some pulp and paper residue. Longer term we will also look to secure
forestry/timber waste from plantations.
CapitalConnect
Electricity from the pilot plant is sold under a 10 year Power Purchase Agreement (PPA) to
a major energy retailer. Can you briefly outline the pricing structure for this agreement?
Managing Director – Peter Gan
We are the only biomass renewable plant certified by the Federal Government Office
Renewable Energy Regulation (ORER) and Sustainable Energy Development Authority
(SEDA) nationally. When energy retailers sign a PPA with GPE, they receive 4 benefits,
namely electricity, green electricity premiums or rights, renewable energy certificates
(REC’s) and in NSW, the NSW Greenhouse Gas Abatement Certificates (NGAC’s). All of
these components are included in the single PPA price; their approximate individual values
($A per megawatt hour, MWh) are as follows: electricity $A30-40, green premiums $A5-10,
REC $A35-45, and NGAC $A5-$10 which equates to a total price of $A75-$A100 MWh.
CapitalConnect
The quality and security of fuel is a critical aspect of uninterrupted WTE operations. What
risk mitigation processes do you have in place to ensure a consistent supply?
Managing Director – Peter Gan
Firstly, the pilot plant and future developments are underpinned by long-term fuel supply
agreements of 10 years plus 5 year extensions. Secondly we secure 125% of our needs to
cover for any variability or redundancy in the fuel supply. Thirdly we agree with our fuel
suppliers a very tight specification of fuel quality in terms of moisture content, size and level
of inerts. These parameters drive the project economics; basically we can combust any
green waste material however for efficiency purposes we secure the best quality at costeffective
rates. Fourthly, we are developing partnerships to build and operate purpose
designed facilities to produce boiler fuel to drive costs down.
CapitalConnect
The EPC agreement with Easteel Industries for Stapylton and Morwell commences the roll
out of GPE’s next phase of projects. What are GPE’s medium-term growth aspirations?
Managing Director – Peter Gan
A large proportion of the company’s resources are dedicated to identifying and developing
future projects. The Stapylton and Morwell plants soon to be commenced kick off the next
phase of our development programme, which consists of four fully approved sites around
Australia. We have also commenced the necessary regulatory and contractual
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arrangements for a pipeline of additional projects representing over 200MW of generation
capacity.
CapitalConnect
What are the risks for GPE as the company looks to expand its portfolio of renewable
energy plants?
Managing Director – Peter Gan
At this stage in our life cycle, one of the main risks is adequately resourcing projects. We
are managing several projects in the engineering and business development fields which
require a high level of expertise. We have to constantly ensure that we have the
appropriate level of resources to advance these developments. Over the last two years we
have developed a quality management team with strong engineering credentials and
experience in the renewable energy market.
Whilst the utilisation of green waste and FBC is a first, the technology has a well
established reputation globally of handling difficult fuels. Each quarter we are learning more
about the characteristics of this fuel and how it behaves with an FBC and we are confident
of reaching our generation capacity targets.
Regulatory risk is an issue to the extent that all regulators are becoming more conservative
but we are a long way ahead of the pack with respect to air emissions. An additional benefit
of our process is that our plants are air-cooled rather than water-cooled. This not only
minimises water consumption at the plant but also prevents any contaminants from
entering the national waterways.
CapitalConnect
There are several waste to energy developers in Australia. What philosophy has GPE
adopted in its goal to be a leading renewable energy player?
Managing Director – Peter Gan
Our strengths are identifying waste management initiatives, securing long-term fuel supply
agreements, addressing the regulatory requirements and understanding the renewable
energy market. We have developed a lot of intellectual property in the green WTE field.
A good understanding of fuel is essential. If you have conventional power generators
looking to build this type of plant, they miss the point. If you get financiers investing in a
renewable power plant prospect they miss the point. Unless you start with the fuel, learn
how to source it and sell the long term benefits to entities such as local councils, efficiently
process and handle the fuel, and secure long term PPAs you can’t develop a project of this
nature on economic terms. You could still build a power station but it will fail on economic
terms.
In the past biomass projects have failed because they did not adequately address all of
these issues. GPE will not commit a dollar of capital until we have secured all the
necessary regulatory and project inputs such as long-term fuel supply agreements to
ensure an economic project. We are confident that there are sufficient sites with adequate
fuel supply to meet our portfolio of projects.
For more information on Green Pacific Ltd visit www.greenpacific.com.au or contact Peter
Gan on 02 9202 3070.
To view past Investor Briefings and receive future Investor Briefings via email, visit
www.capconnect.com.au
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