Waroona Project Cuts Capex to $283m, Forecasts $57m Annual EBITDA
Frontier Energy’s updated Definitive Feasibility Study for its Waroona Renewable Energy Project confirms robust financial returns, reduced capital costs, and enhanced market opportunities amid rising electricity prices in Western Australia.
- Updated DFS shows $244m NPV7% and 15.4% post-tax IRR for Waroona Stage One
- Capital expenditure reduced to $283m despite larger 80MW battery integration
- Reserve Capacity market reforms and higher price ceilings boost project economics
- Average annual EBITDA forecast at $57m over first decade of operation
- Frontier advancing multiple financing options including PPAs and strategic investors
Updated Feasibility Study Validates Strong Project Economics
Frontier Energy Limited (ASX: FHE) has released an updated Definitive Feasibility Study (DFS) for Stage One of its Waroona Renewable Energy Project, reinforcing the project’s potential to deliver compelling returns over its 30-year lifespan. The study, building on the February 2024 DFS, incorporates lower capital costs and revised electricity price forecasts, resulting in a post-tax internal rate of return (IRR) of 15.4% and a net present value (NPV) at 7% discount of $244 million.
Key to the improved economics is a reduction in capital expenditure to $283 million from $304 million, achieved despite the integration of a significantly larger 80MW battery with 4.75 hours of storage capacity (380MWh). This battery upgrade is designed to maximise energy sales during peak demand periods and sustain Reserve Capacity payments, enhancing revenue stability.
Market Dynamics and Policy Changes Enhance Revenue Upside
The project benefits from favourable developments in Western Australia’s electricity market. The Reserve Capacity Price (RCP) for 2027/28 has surged by 57% to $360,700 per MW, reflecting a shift in benchmark technology assumptions. Additionally, the introduction of a minimum RCP floor at 50% of the benchmark price and an increased price ceiling to 1.5 times the benchmark provide further revenue certainty and upside potential.
In addition, the Western Australian energy price ceiling was raised to $1,000/MWh from $738/MWh effective January 2025, with peak energy prices in 2024 averaging a record $171/MWh. These market conditions, coupled with the expected closure of coal-fired power stations by 2029, underpin a bullish outlook for renewable energy projects like Waroona.
Operational Strategy and Revenue Composition
The Waroona project is designed to generate approximately 258GWh of renewable electricity annually in its first year, with 134GWh stored in batteries and dispatched during peak periods to capture higher prices. The integrated battery-solar system mitigates curtailment risks and ensures 100% renewable energy supply during peak demand, distinguishing it from standalone battery arbitrage models.
Revenue streams include energy sales from both battery and solar generation, Large-scale Generation Certificates (LGCs), Reserve Capacity payments, and potential Essential System Services (ESS) revenues, which remain excluded from current forecasts due to market immaturity but represent upside potential.
Financing and Corporate Developments
Frontier is actively progressing multiple financing avenues, including discussions on Power Purchase Agreements (PPAs) to secure revenue certainty and engagement with strategic investors. The company’s cash position stood at $14.3 million as of December 31, 2024, supporting ongoing development activities.
On the corporate front, the anticipated appointment of Mark McGowan AC as non-executive chairman was deferred, with Executive Chairman Grant Davey continuing to lead the company. Frontier is also advancing the recruitment of independent directors with relevant expertise to guide the next phase of growth.
Outlook Amid Evolving Energy Landscape
With Western Australia’s energy market undergoing significant transformation, Frontier’s Waroona project is well positioned to capitalise on rising electricity prices, enhanced Reserve Capacity frameworks, and the transition away from coal generation. The company’s strategic focus on optimising financing and operational execution will be critical to realising the project’s full value.
Bottom Line?
Frontier’s Waroona project stands at a pivotal juncture, with strong fundamentals and market tailwinds setting the stage for its next growth phase.
Questions in the middle?
- How will Frontier finalise its financing structure amid evolving market conditions?
- What impact will the new Flexible Reserve Capacity payments have on project revenues?
- How might further electricity price volatility affect the project’s long-term profitability?
