Frontier Energy looks to non-dilutive funding options for Waroona project

Frontier advances discussions for non-dilutive funding for Waroona project
Company is considering bonds, equipment-supplier financing and CIS scheme
Debt discussions pending a definitive feasibility study update

Special Report: Frontier Energy has updated its funding strategy for stage-one development of its Waroona renewable energy project in WA to target non-dilutive options.

Stage one of the Waroona project in WA combines a 120MWdc (megawatts of direct current) solar facility with an integrated 4.5 hour duration 80MW/360MWh lithium-ion phosphate (LFP) battery to supply clean electricity into the South West Interconnected System.

Discussions have now commenced regarding multiple non-dilutive funding options including bonds, equipment-supplier financing and even a sale and leaseback arrangement in relation to the company’s extensive landholdings.

“Delivering a non-dilutionary funding solution for the Waroona project development is our highest priority and we are now accelerating engagement on a range of these options,” Frontier Energy (ASX:FHE) CEO Adam Kiley said.

“We had previously investigated a number of these options, however, did not pursue these due to existing debt proposals from traditional banks requiring a five-year fixed reserve capacity price.

“These options are excellent alternatives compared to the original strategy, with some potential benefits in terms of flexibility and leverage.

The company will continue to progress these options in parallel and will provide an update to shareholders as discussions progress.”

Bonds, equipment supplier and CIS scheme

Frontier sees increasing activity among international infrastructure, renewable funds and fixed-income investors in providing debt financing, and these alternative sources of capital – such as bonds – can potentially provide more flexible financing terms compared to traditional bank financing options.

Looking at equipment-supplier financing, key capital equipment, including solar panels and batteries, comprise a significant portion of the overall capital cost.

Potential solutions to fund development, which are lower in cost than equity, include significant extension of payment terms; access to additional capital pools from institutional credit investors beyond existing banking relationships; and mezzanine finance arrangements.

A key driver for equipment suppliers to offer such funding is the alignment for the supplier with the long-term warranty associated with the equipment supplied. It also provides a unique opportunity for Asian based banks/credit investors to participate in global high quality ESG/sustainability transactions.

Since completing the definitive feasibility study in February 2024, there has been a significant reduction in the price of solar panels and batteries, due to an over-supply of these items.

As a result, equipment suppliers are willing to offer financial support to companies such as Frontier, to drive demand and absorb the over-supply.

There’s also the Federal Government’s Capacity Investment Scheme (CIS), which aims to incentivise the deployment of renewable and clean dispatchable capacity by 2030 to assist the Government in meeting its target of 82% renewable electricity by 2030.

The CIS will provide substantial revenue support (90%) if a project’s revenue falls below an annual floor, however, a project will also be required to pay a percentage of revenue (50%) if revenue exceeds an annual ceiling, with payments subject to an agreed annual payment cap.

The CIS also guarantees a minimum level of support for renewable-energy-supplied battery projects for up to 15 years, again bringing into play traditional funding solutions.

Financing pending a DFS update

The project has all necessary approvals in place and the company says it’s in a strong position to quickly advance the debt process once the Definitive Feasibility Study (DFS) has been updated.

The update is expected to demonstrate several key capital cost reductions compared to the original DFS, is on track for delivery in Q4 CY2024 and is key to progressing discussions.

On the bond front, the company is in discussions with a European investment bank that specialises in international debt capital market issues to the energy sector, and with significant due diligence already completed for the project, FHE is in a strong position to quickly commence the debt process once the DFS has been updated.

Frontier has also had discussions with several equipment suppliers, who offer a range of funding options that provide flexible credit-financing solutions to seize market opportunities.

The company says its financing strategy will continue to preserve exposure to upside in energy prices, which are forecast to continue rising through the energy transition.

This article was developed in collaboration with Frontier Energy, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.