When a small Australian renewable energy company was formed in 1992 not even its most optimistic backers imagined that it would one day be developing, building and operating large-scale hydro, wind, solar and geothermal power projects throughout the world.
Pacific Hydro began life with a series of small-scale hydro projects in Australia. By 1997 the company was part of a joint venture involved in building a 70MW hydro project on the Bakun River in the Philippines and in 2004 it established a beachhead in South America with the acquisition of the Coya and Pangal hydro plants in Chile. In 2005, the company became a wholly owned subsidiary of Australian Infrastructure Fund, an investment management company with A$29 billion in assets, owned by a number of Australian industry superannuation funds. This ownership structure allowed Australian workers to provide for their retirement through investments in green energy while providing Pacific Hydro with the financial backing required to facilitate its growth.
Over the last six years Pacific Hydro has invested heavily in Chilean hydro projects. In a 50/50 joint venture with Norwegian developer SN Power, it built the 155MW La Higuera and 159MW La Confluencia hydro plants in Tinguiririca Valley, 150 kilometre south of Santiago. Officially opened in 2010, these plants abate over 600,000 tonnes of greenhouse gas pollution every year and generate enough clean electricity to supply 900,000 homes.
In late 2011, Pacific Hydro opened the A$450 million, 111MW Chacayes hydro plant in the Cachapoal Valley in the Andes Mountains. The plant abates 340,000 tonnes of greenhouse gas a year and powers 300,000 local homes. And it’s merely the first phase of the company’s plans for the Cachapoal Valley, where it aims to generate up to 600MW of hydro power by 2020, preventing more than 1.13 million tonnes of greenhouse gas pollution entering the atmosphere every year.
But how did a company based in a relatively flat and very dry country with abundant coal and natural gas reserves become a hydro powerhouse? Rob Grant, the CEO of Pacific Hydro believes it was exactly those factors, along with far-sighted policy decisions by Australia’s state governments to open their energy markets up to competition, that laid the groundwork for Pacific Hydro, and a number of other Australian power companies, to thrive.
Although Australians do have some experience with hydro, not least the Snowy Mountains scheme, a hydro-electricity and irrigation complex comprising 16 dams, seven power stations generating 3756MW, and 225 kilometres of pipes, aqueducts and tunnels, Grant is quick to point out his company’s success isn’t down to any technological advantage. “Pacific Hydro doesn’t develop any new technologies, we just apply what’s available off the shelf, albeit it in a more commercially innovative way than our competitors. Most of the intellectual property and value we create is in early-stage identification and development of projects.”
Identifying overseas markets where “we thought we had the expertise that would create value for shareholders and where we had a competitive advantage” has seen Pacific Hydro grow from an A$10 million company to an A$2 billion multinational enterprise and “one of the largest pure-play renewable energy companies in the world”, as Grant puts it.
“The reason we pushed into overseas markets early on was because there wasn’t the opportunity to do much more with hydro in Australia by the mid-1990s,” Grant says. “Australia made the decision to deregulate its power market quite early on, around the time Pacific Hydro started up. That deregulation and privatisation process generated a number of very successful Australian independent power producers and made Australian companies lean and mean enough to compete in fully privatised markets such as Chile’s. Plus, Australia has the fortune or misfortune of having so much coal, which is used to generate 90 per cent of its electricity. On a per capita basis we’re the world’s highest CO2 emitters, so there is the motivation to do something dramatic about renewable energy that doesn’t necessarily exist elsewhere.”
With Australia, which is implementing a strong emissions trading scheme on 1 July, and the rest of the world moving to price carbon, Pacific Hydro’s continued growth appears assured. “The mechanisms being used to make energy less carbon intensive don’t differentiate between technologies used to hit targets but, if the water is there, hydro is the lowest cost option. There’s probably at least another 10,000MW of hydro electricity in Chile, where we’ve got an A$2 billion investment pipeline, and goodness knows how much in Brazil. They’re the two international markets we’re focused on, but there are opportunities throughout Latin America. South-East Asia, particularly the Mekong Delta, also has enormous hydro potential.
“There needs to be more than just water for hydro power to work; there needs to be a deregulated energy market where you can sell it, political stability, banks that can lend into the market. But where there is that confluence of conditions, price signals (be they from domestic emission trading schemes or international schemes that countries can sell carbon credits to) will bring more hydro power to the market, because it’s the cheapest source of renewable energy.”