Sun Cable troubles not an indictment of large renewables projects in Asia, say analysts

Central to the dispute appears to be the 4,200-kilometre electricity cable from Australia to Singapore – which one major investor wants replaced with hydrogen shipments.

large scale solar farm
A large-scale solar farm. Image: Flickr/ U.S. Department of Energy.

About a decade ago, an ambitious plan to channel gigawatts of renewable energy from North Africa hundreds of kilometres into Europe fizzled out due to political risk and high costs – of up to hundreds of billions of dollars. Among the issues was the use of an older, more expensive type of solar technology that converted the sun’s heat, not light, into electricity.

Last week, another megaproject to pipe solar power from sunny Northern Australia to Singapore stalled, when Sun Cable, the firm helming the project, went into voluntary administration, placing control into the hands of external managers. The solar panels to be used cannot be blamed – the newer cells could well be one of the cheapest ways to generate electricity today.

The latest reports from Bloomberg News and Australian media point to Sun Cable’s two major funders disagreeing on the future direction of the US$30 billion project after delays late last year. Mining magnate Andrew Forrest wants to ditch the 4,200-kilometre subsea electricity cable from Northern Australia to Singapore and switch to green hydrogen shipments, but billionaire peer Mike Cannon-Brookes wants to keep to the original plan.

Analysts say the setback is not a sign that large renewable energy projects do not work, pointing to Sun Cable’s troubles originating largely from a clash of investors’ priorities. The finances of renewables continue to support scaling up, and Sun Cable’s megaproject could still survive albeit with changes to the original plan, they say.

Cable trouble

If built, the Sun Cable’s subsea power line linking Northern Australia to Singapore would be the longest in the world, beating out the US$1.7 billion, 720-kilometre Norway-UK link by nearly six times.

The plan was to enable Singapore to receive 1.75 gigawatts (GW) of electricity from the cable.

It is difficult to develop such a cable in stages, said Dr David Broadstock, senior research fellow at the National University of Singapore’s energy studies institute, which necessitates a high upfront commitment to start its development.

“The options there are binary, you either have it or you don’t,” he said, adding that very specialised equipment is needed to lay the power line.

With the surge in commodity prices after the pandemic and amid the Russia-Ukraine conflict, there could be an increase in logistics cost that tilted the viability of the cable into the red too, Broadstock said, though long-run price expectations should not vary drastically.

Marc Allen, an energy consultant and co-founder of Singapore-based climate-tech platform Unravel Carbon, said Sun Cable’s plan thus far has not included Singapore buyers for its electricity – an element he said would “underpin the project completely”.

“It shows that one should have the business case fully defined beforehand,” Allen said.

Sun Cable has said in October last year that there are more than enough potential Singapore buyers of its electricity based on a gauge of interest, though it did not disclose the price offered to them.

Allen said that although Australia has more sunshine than Southeast Asia, there should be a closer look at whether sending the power far away, compared to using it at home, is worth the additional costs. He conceded that it is difficult to attract business should projects only promise to export excess energy that domestic markets cannot take up.

“I don’t think there is a right or wrong answer,” he said, as to whether renewable energy should be used to beef up domestic energy security, or exported in megaprojects resembling how fossil fuels are traded today.

Nonetheless, these issues likely do not take away from the viability of the solar farm to be built in Australia, which would also become the world’s largest, experts say.

“For many years now we’ve seen renewables, especially solar, become more price-competitive,” Broadstock said.

“Now we have innovative projects where we can scale things up and they look even more attractive, especially to investors that have the scale of free cash flow. So the core fundamentals of the finances are attractive,” he added.

“I would suggest not reading too much into [Sun Cable’s voluntary administration], and it is certainly not an indictment of giant energy projects: these are here to stay,” said Assaad Razzouk, chief executive of Singapore-based renewables firm Gurin Energy.

Hydrogen knocks

Squadron Energy, which Sun Cable investor Forrest owns, has confirmed it is mulling a bid to revive the stalled project, likely without the cable link to Singapore. Forrest himself said in an interview with Bloomberg that he sees more opportunity with clean fuels like hydrogen and ammonia, not power transmission.

Hydrogen fuel can be produced by splitting water molecules using renewable electricity, in a process that produces little to no carbon emissions. Ammonia is a transport-friendly variant of the fuel.

Forrest is the founder of Australian mining firm Fortescue Metals Group, which in recent years has made major forays into green hydrogen across the world.

“[Fortescue Metals Group] will do whatever they can to build up their own hydrogen capabilities,” Allen said.

Singapore also signalled at the end of 2022 that it wants in on the hydrogen industry, with a pilot plant slated to open in 2027. The city-state, currently using natural gas, could rely on hydrogen for up to half its power needs by 2050, the year it intends to get to net-zero emissions, the government has said.

If Sun Cable switches to exporting renewable hydrogen or ammonia, it would be following in the footsteps of another planned megaproject in Western Australia, dubbed the ‘Asian Renewable Energy Hub’ and led by British oil and gas firm BP. That project had started with ambitions to pipe electricity to Indonesia, before pivoting to shipping ammonia instead.

Razzouk said that there can be multiple uses for the solar power plant Sun Cable is proposing in Northern Australia, which on paper will be up to 20GW peak with large batteries in support.

The voluntary administration exercise the firm is going through now would help the firm “tidy up disagreements” and emerge with a new direction, whether it be to continue exporting electricity, or ammonia, or to keep the business domestic, Razzouk said, adding that the firm would still have five to seven years to develop its eventual business, according to current timelines.

Broadstock said that newer technologies such as hydrogen and nuclear energy could also creep in and displace investments from solar power in Asia.

But he said that it is “very punishing” for Sun Cable to be going through voluntary administration.

“There is a huge reputational consequence to this…it tells all stakeholders and potential partners that you have not had a positive experience,” Broadstock said.

“Why were there no grace periods? Why has there been no offer to keep the company operating while negotiations continue?” he questioned.

US-based FTI Consulting, which is handling Sun Cable’s administration, did not respond to requests for comment. Sun Cable did not provide additional comments beyond its initial announcement of entering voluntary administration, and that FTI Consulting would likely seek more funding, or sell the business.

Southeast Asia impacts

Sun Cable’s existing plan dating from 2019 involves routing the subsea electricity cable through Indonesian waters en route to Singapore.

The Indonesian government appears to have been receptive to the idea, even as it has stopped short of allowing the laying of the cables to go ahead. In 2021, Sun Cable said it will invest US$2.5 billion in Indonesia, with part of the money going into local jobs and manufacturing. An Indonesia maritime official said then that the development proves the country to be a trusted partner and a strategic investment location.

The firm has also submitted its proposal to import electricity into Singapore last year. The project’s 1.75GW potential amounts to over 40 per cent of the 4GW of clean energy Singapore wants to import by 2035.

Singapore’s Energy Market Authority (EMA) said it cannot comment on Sun Cable’s decision to enter voluntary administration, and did not answer a query on if the firm has withdrawn its application to import electricity into the city-state.

The EMA spokesperson said Singapore remains on track to meet its 2035 clean energy import target. It has received over 20 proposals from other projects to import electricity from countries like Indonesia, Laos, Malaysia and Thailand, with more plans in discussion, the spokesperson said.

Indonesia’s energy and mineral resources ministry did not reply to queries about ongoing maritime surveys for the electricity cables, and impacts to its development plans. Infrastructure Australia, a government body focused on construction financing, did not reply to a query on whether Sun Cable’s ambitious project is still on its national priority list.

Allen said that Southeast Asian policymakers are likely assessing Sun Cable’s developments “through a fresh set of eyes”, and that conclusions could go either way. They could see it as an opening up of the clean energy market for more trade opportunities with Singapore, or question the demand for such large scale projects, Allen said.

In any case, such large clean energy imports could be needed to fully decarbonise Southeast Asia, since it remains to be seen if the region can build its own large-scale clean energy projects, Allen added.

Less relevant, experts say, would be whether the trouble with Sun Cable’s lengthy subsea wiring is a warning for the development of the Asean Power Grid – an ambitious government-led plan to connect the electricity grids of Southeast Asia countries.

The Asean Power Grid’s cables would run overland, which is cheaper and simpler, while much of its slow, 26-year development could be attributed to political inertia, they say. For instance, Malaysia and Indonesia have standing bans on the export of renewable energy.

There are also other public projects being floated in Southeast Asia that involve large grid connections for cross-border renewables trading. China had announced such intentions years back, while India recently proposed similar connections under its ‘One Sun, One World, One Grid’ initiative.

The region remains capable of financing projects the scale of which Sun Cable is proposing, Broadstock said – with foundations, investors and governments able and willing to offer the investment needed.

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