Tycoon-burned Sun Cable would shine with new owner
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Antony Currie
MELBOURNE, Feb 1 (Reuters Breakingviews) -Bankruptcy experts will be looking with envy at Australia’s Sun Cable. The renewables upstart aiming to become the “world’s largest solar energy infrastructure network” entered voluntary administration last month after its two largest shareholders disagreed over strategy. The pair, Andrew Forrest and Mike Cannon-Brookes, are likely to compete against each other to buy the insolvent firm. A bidding war would be great for administrator FTI Consulting FCN.N and financial adviser Moelis MC.N, who launched the sale process on Tuesday. What’d really help make Sun shine brighter, though, is an entirely new owner.
This is not a typical corporate bankruptcy. Sun is an early-stage company with neither revenue nor debt. It ran into trouble because of a spat between Forrest and Cannon-Brookes, sparked by Sun missing a couple of performance goals. That prevented investors from handing over the final third or so of the A$210 million ($148 million) they pledged in a series B funding round last March.
Sun had ambitious aims: construct a huge solar-panel farm in the country’s Northern Territory to generate up to 20 gigawatts of energy; build batteries big enough to distribute power 24 hours a day; and then lay a 4,200-kilometre cable to send electricity to Singapore to satisfy 15% of the city-state’s needs. The project could end up requiring A$30 billion or more but, for now, Sun’s value to any buyer rests in its already approved rights to construct the solar array and batteries, which were due to start going online in 2027; no agreement to sell power to Singapore has yet been struck.
The idea of turning Australia into a renewable-energy-export superpower holds great appeal Down Under because climate change policies threaten revenue generated from selling fossil fuel: coal and gas account for more than a fifth of the value of goods the country sells abroad. Australia’s huge land mass is 70% desert and very sunny. So it is, in theory, ideal for generating solar power.
Winning the backing of Brookes’ private fund Grok Ventures and Forrest’s Squadron Energy back in 2019 was a promising sign for Sun. They’re both big advocates for battling climate change and have deep pockets. Cannon-Brookes’ day job is co-chief executive of $42 billion software company Atlassian TEAM.O. Last year, though, he teamed up with Brookfield Asset Management BAM.TO, BAM.N in a failed attempt to buy AGL Energy AGL.AX, Australia’s biggest greenhouse-gas emitter, to speed up its transition from coal.
Forrest, known as “Twiggy”, already channels 10% of annual net profit from the iron ore miner he founded, Fortescue Metals FMG.AX, into Fortescue Future Industries, an entity created to develop decarbonisation strategies for its parent. Squadron is one of his private investment firms, and in December it set itself up to be the country’s largest owner of green energy production by agreeing to pay A$4 billion for CWP Renewables in an 11th-hour offer that bested domestic rival Tilt Renewables and Spain’s Iberdrola IBE.MC, among others.
They each see a different future for Sun, but both are risky ventures. Cannon-Brookes wants to stick with the original plan of sending most of the power generated to Singapore. That faces plenty of challenges: the subsea cable would be far longer than the 720 kilometer one connecting electricity systems of Norway and the United Kingdom since 2021; and if countries closer to Singapore, like Malaysia and Indonesia, were to follow Sun’s lead, they could export energy more cheaply.
Forrest’s Squadron favours a different method of exporting the solar energy: use it to create green hydrogen and green ammonia, then transport those products in a tanker to whichever markets want it. Producing green hydrogen, though, requires a steady flow of clean water, which is hard to come by in arid regions. And making the gas is inefficient, with up to 70% of lost to production, prepping and transport, according to White House climate adviser Saul Griffith; that loss is just 20% for direct use of solar.
While Australia may one day be well positioned to export renewable energy, for now it needs to keep as many electrons as possible within its borders. Recent technical failures at coal-fired power stations in Australia, which supply more than half the country’s electricity, have disrupted energy generation, causing supply shortages and exacerbating price hikes. If rival bidders propose to focus on the domestic challenge, those candidates likely to lob in an offer for Sun – such as Macquarie MQG.AX, Brookfield or Iberdrola - ought to be able to pay more than either tycoon and still generate better returns.
Follow @AntonyMCurrie on Twitter
CONTEXT NEWS
Sun Cable’s administrators, FTI Consulting, on Jan. 31 formally kicked off the sale process for the insolvent Australian renewables project and appointed Moelis as its financial adviser.
The solar power and battery storage project went into administration on Jan. 11 after Grok Ventures and Squadron Energy, its two biggest shareholders, failed to agree on terms for providing the final A$60 million ($42 million) of cash out of A$210 million raised in a series B funding round in March.
Sun Cable was founded in 2018 with plans to install solar panels capable of generating up to 20 gigawatts, assuming peak conditions, and up to 42 gigawatt hours of battery storage in the Australia’s Northern Territory. The goal was to send most of the energy produced to Singapore by an as-yet unbuilt 4,200-kilometre undersea cable.
Grok, the private financing vehicle of Atlassian co-founder and co-Chief Executive Mike Cannon-Brookes, wants Sun Cable to continue with its original plan of sending power to Singapore via cable. Squadron, which is owned by Fortescue Metals’ founder and Executive Chairman Andrew Forrest, doubts the viability of the undersea cable part of the project and would rather the energy produced be used to make green hydrogen and green ammonia, much of it for export.
Editing by Una Galani and Thomas Shum
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