Watch for storage in French firm Neoen’s €640m IPO

Tesla founder Elon Musk supported Neoen in South Australia with a 100MW battery system. (Pic source: NASA Kennedy)

Tesla founder Elon Musk supported Neoen in South Australia with a 100MW battery system. (Pic source: NASA Kennedy)

BY RICHARD HEAP:

French renewables firm Neoen last week launched one of the largest initial public offerings in Europe this year.

It is looking to raise €640m to support its international growth plans with a listing that would price its shares at between €16 and €19 each. If there’s demand, it could sell more and take the raise to €711.5m.

This would make Neoen one of the few listed firms in Europe focused on renewables exclusively, alongside the likes of Portuguese utility EDP Renewables, British utility Good Energy, Danish utility Orsted, and French developer Voltalia. It would also cement its position at France’s largest independent renewables firm.

Neoen plans to use these funds to more than double the size of its 2GW portfolio of wind and solar farms to 5GW by 2021 – and storage is set to play a major role in its plans. And that’s where we think this starts to get really interesting. In the last few years, Neoen has become a high-profile advocate for storage with renewables.

To find out why, we have to travel far from Neoen’s headquarters in Paris and to the other side of the world: Australia to be precise.

Grid troubles in Australia

This story starts – as so many have in recent months – on the fevered Twitter thread of billionaire Elon Musk. In early 2017, Australia was beset by political arguments on the role of wind farms in causing blackouts in the state of South Australia in 2016.

Prime Minister Malcolm Turnbull sparked a political row by blaming the blackouts on the number of wind farms in the South Australian electricity grid, which ignoring the impact of storms in damaging grid lines. The Australian Energy Market Operator said a combination of these factors were in fact to blame, not wind farms alone.

However, during that row, Musk tweeted in March 2017 where he could fix the state grid by installing a huge Tesla battery storage system, and that if he didn’t do it within 100 days of contracts being signed that he would provide it for free. This involved developing a battery for Neoen’s 315MW 99-turbine Hornsdale wind farm.

The 100MW Tesla Powerpack was finally switched on in December 2017, and became the world’s largest lithium-ion battery scheme with potential to power around 30,000 homes. It was also delivered in time to avoid Musk having to make good on his promise to deliver it free, as well as the huge PR attention it attracted.

This has given Neoen great first-hand experience of the benefits of adding storage to its schemes; and it is now building new wind, solar and battery schemes in the states of New South Wales and Victoria, with others planned in Queensland too.

Not that controversy over the South Australian blackouts has died down. In its IPO documents, Neoen revealed that it is facing claims for damages connected with the state-wide 2016 blackouts. It also revealed the total cost of the battery was A$90m ($64m), which included connection fees and extra costs for quick delivery.

This has added to the arguments. The government of South Australia said its predecessors had pursued a “rushed, chaotic and expensive fix” to problems in the grid, and had cost taxpayers an estimated A$5m (£3.5m) a year to have the battery in place.

However, others have pointed to the benefits that the battery has brought to the state grid, and AMEO has also argued for the benefits of the developments.

A report by McKinsey & Co. in May said the battery had reduced grid service costs by around 90%, and now provided 55% of the state’s frequency control services.
It said it had increased the grid’s reliability, and had enabled renewables to step in twice to provide back-up power when a coal-fired power plant went offline.

Neoen’s storage experience

No doubt these political arguments will continue to run. What is indisputable, though, is that this case has given Neoen great experience of linking large lithium-ion battery schemes to its utility-scale generation projects.

On that basis, we see energy storage as a key part of its strategy going to help to maximise its revenues in the future, and its schemes could play important roles in the commercialisation of the technology.

This also means the company would be worth a look for investors with an interest in backing renewable energy companies – although this is where we should give the important caveat that we’re not stock pickers. Seriously, don’t trust me to tell you how to invest your cash wisely.

Neoen chief executive Xavier Barbaro said that the company has projects totalling 2GW in operation and under construction; additional secured capacity of more than 1GW; and a 7.4GW development pipeline. The IPO should give it the funds it needs to make progress on reaching that 5GW by 2021.

This French developer won’t lead a storage revolution on its own, of course. And it’s also entirely possible to argue that its experience with Tesla is the result of its project being in the right grid – or should that be wrong – at the right time. But its experience with Tesla in Australia should make storage an important part of its strategy, and the Powerpack’s strong statistics thus far have drawn attention to a storage revolution.

Whatever you think of Musk tweets, we should at least be grateful for that one.

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