QPM locks in $113.7m Macquarie funding to power up Isaac Power Station

• QPM Energy secures $113.7m Macquarie lease to fund two gas turbines at Isaac power station
• Lease providing funds through construction and five years of operation demonstrates long-term support by Macquarie
• Delivery of gas turbines secured, underpinning mid-2027 commissioning target for the power station

Special Report: QPM Energy’s goal of increasing its electricity generation capacity has reached a major milestone after securing funding for two gas turbines that will power its 112 megawatt Isaac power station in Moranbah, Queensland.

The company has executed a $113.7m master lease agreement with Macquarie Bank that fully funds the acquisition of two LM6000 gas turbines from GE Vernova.

Importantly for QPM Energy’s (ASX:QPM) plan to develop the Isaac Energy Hub that will leverage its significant proved and probable (2P) gas reserves of 435 petajoules, the MLA locks in delivery of the generation units for the power station while underpinning the mid-2027 commissioning target.

The company had already secured a fixed-price contract for two turbines that use proven, conventional technology,  suitable for both peaking and base load generation. This was an important milestone as procurement lead times have blown out to five to seven years.

Adding interest, the turbines are able to operate on non-pipeline spec gas that is at least 50% methane content, allowing them to run on waste coal mine gas that cannot be fed into the North Queensland Gas Pipeline.

Given the potential closure of the major coal-fired Gladstone power station in central Queensland some six years early in 2029, the Isaac power station will be in place to meet at least some of the expected generation shortfall.

The ageing power station is Queensland’s largest, with a capacity of 1680MW, and the generating capacity QPM is bringing into play will likely be snapped up eagerly.

The Queensland state government is also expected to highlight the continued importance of gas-fired generation in its upcoming Energy Road Map, which could have positive impacts on approvals and government assistance.

Funds available under the MLA will also be used to pay the costs of transporting the units from GE Vernova’s factory in Hungary to the plant site.

QPM notes the MLA has a committed tenor of up to 84 months, demonstrating Macquarie’s long-term support by providing funding throughout the entire construction phase and the first five years or so of operation.

“Securing the Macquarie Lease Agreement is another major milestone for QPM Energy and the Isaac power station,” chief executive officer David Wrench said.

“With delivery of the gas turbines now locked in, the company is well positioned to deliver Queensland’s next major gas fired power station on time and on budget.

“The cost of finance of the MLA is lower than our Feasibility Study estimates enhancing the project’s capacity to generate robust financial returns for shareholders.”

Lease terms

The 84-month MLA carries a 2% establishment fee and is priced on an arm’s length basis at market competitive rates that are lower than the rates assumed in QPM’s feasibility forecasts.

Under the repayment schedule, QPM will only need to repay interest during construction for up to 24 months before having to pay both principle and interest from months 25 to 84 on a straight-line amortisation basis down to a 70% principal balance.

The company will then be required to pay a bullet of ~$70m at maturity.

The MLA is subject to the usual conditions for lease facilities of this nature.

Road to development

QPM is advancing the 112MW Isaac power station rapidly with work underway to complete detailed engineering and design to confirm the project’s feasibility study capital cost estimate of $215.1m including contingency.

It has also progressed the tendering and negotiation of contracts for key work packages including gas turbine installation and the balance of plant, high-voltage transmission line construction, gas delivery system, water supply and operations and maintenance.

Additionally, the company is finalising a material change-of-use development application with the Isaac regional council and is working with the Queensland government’s Office of Coordinator General to facilitate timely approvals by relevant government stakeholders.

A preliminary works agreement has also been executed with Powerlink Queensland for grid connection of the power station at the Moranbah substation.

The PWA commits Powerlink to procure long lead items and complete final design and engineering of the grid connection. A Connection and Access agreement is currently being prepared.

Under the feasibility study, the 112MW Isaac power station is expected to generate $71.4m in revenue annually with short-run marginal costs of $59 per megawatt hour.

Annual average EBITDA is expected to be $49.2m while unlevered net present value and internal rate of return – both measures of profitability are estimated at $196.4m and 20.3% respectively.

The power station is expected to contribute strongly to the company’s revenue and earnings by leveraging exposure to the peaking power market and volatility in Queensland electricity prices.

There is also further upside potential for the company by increasing gas supply to enable greater electricity generation, use of mine waste gas and increasing generation capacity.

This article was developed in collaboration with QPM 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.