In today’s market, capital is chasing certainty – and developers are chasing capital. Co-development arrangements have emerged as the meeting point.
Capital partnering through these structures is becoming a defining feature of Australia’s energy transition, with benefits for both parties:
- Developers - unlock the funding needed to progress and deliver growing pipelines
- Investors - gain a disciplined pathway into the market – securing exposure to prospective assets through partners with the platform, capability and delivery track record to originate and execute, without taking full upfront project risk.
Working across a broad range of capital partnering transactions over the last 12-18 months –renewables, BESS, gas and pumped hydro – we are seeing three key themes emerge in transaction structuring.
Three transaction structures to watch
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Structure
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Snapshot
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Key considerations
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Early-stage option to purchase / participate |
Investors fund development at an early stage under joint development arrangements, often in return for an option to acquire project interests once the project is ‘shovel-ready’. Benefit: Provides necessary capital for projects to get off the ground. |
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Pre-financial close committed funding |
Developer retains substantial control of development, with the capital partner only committed to provide equity for construction once the agreed technical and financial criteria are met (including debt raising). These structures lock-in both parties if agreed criteria is met. Benefit: Provides mutual certainty - developers gain comfort that capital can be accessed if it meets the criteria, while the investor is only locked-in if the project stacks up. |
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Competitive partnering at financial close |
Capital partners are only sought once assets are nearing financial close, with equity and debt transactions targeted to close in tandem. Benefit: Maximises value for developers in strong markets. |
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Demand for institutional capital remains strong in the power sector, though competition has intensified across other infrastructure classes and technologies such as data centres. This has meant clean energy assets must stand on their own and compete for capital, with less reliance on their green credentials. A marked change from two or three years ago.
Queensland: opportunity for private capital
There has been a major shift in Queensland, with State-owned generators pivoting away from funding and owning new generation and storage assets under the Queensland Energy Roadmap. While they are less likely to own new assets, the State-owned generators will play a key role in project delivery. They are expected to support equity investment and project finance structures through offtake arrangements.
This creates significant opportunities for private sector capital, to partner with Queensland government backed generators and benefit from offtake arrangements supported by the Queensland government’s credit rating.
For the private sector, a carefully designed offtake arrangement is critical - particularly those involving storage - and any related arrangements to ensure accounting (balance sheet) and tax outcomes are aligned with the generators’ and State’s objectives.
These structures will be of particular importance in delivering large-scale storage projects including pumped hydro and further gas peaking plants, which are critical to firming capacity.
Looking ahead - What to expect
Given the scale of projects in the pipeline, there will be more pre-financial close transaction structures, built around high-quality developers with large-scale projects and involving multiple equity partners or upstream equity consortia. In these structures, there will continue to be tension between more relational approaches – characterised by greater flexibility on exclusivity, exit rights and funding commitments - and more firm contractual approaches, in which contingencies are exhaustively addressed in the transaction documents. Getting the balance right, together with appropriate timing to resolve the final investment decision or assess the final hurdle, is critical to ensure projects can proceed within the partnership or return to market.
We explore these themes further in Episodes 4 and 5 of our Power Perspectives Podcast, available on Spotify and Apple Podcasts:
