At first glance it may seem surprising to have a bank developing, constructing and possibly even owning a portion of a gas-fired power generation facility.

However, Investec has shown this can be done with a sound understanding of project risk management, the right development team and a bank leadership team that understands the need to balance its backing for the development team with appropriate controls on investment strategy.

Cherokee Power Station has been specifically configured to meet the demands of the South Australian market over the next 5–10 years. Cherokee will be the major generation support source for future load growth in South Australian given its connection point into the Tungkillo substation – a key node for the four major 275 kV lines servicing Adelaide.

The development approval for Cherokee Power Station was granted in November 2010.

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Investment rationale

Location The ability to physically generate close to the market provides a risk management mechanism for retailers who would otherwise face skyrocketing prices in times of peak demand.

The site also plays a strategic role in supporting the gradual retirement of South Australia’s aging base load coal-fired plants as it can be readily configured for combined-cycle gas turbine operation, due to its location only 7 km from the Murray River.

This careful choice of site, coupled with some innovative design thinking, has enabled Investec to dramatically improve the ability of Cherokee to match a power retailer’s position. The strategy is designed to improve the price, term and bankability of the consequent offtake agreements.

Low emissions Gas-fired generation fits well with our focus on alternative energy assets.

Gas-fired power has around half the average greenhouse emissions intensity of coal-fired power and thus provides a means of significantly reducing the carbon intensity of South Australia’s power generation fleet.

Cherokee is well-positioned to complement the fast growing wind power supply in South Australia, which can be volatile and intermittent. As a peaking generator with fast start capability, it allows the proportion of power generated from wind to rise over time, which further contributes to lowering South Australia’s emissions.

Investec is watching with interest the negotiations over a domestic carbon pricing regime, which it sees as supporting some fundamental changes in the structure of the combined South Australia/Victoria power system.

In particular, Investec believes an increased penetration of renewable energy and higher short run marginal costs will support the value of flexible fast start facilities like Cherokee that can be readily configured for combined-cycle operation.

Planning The flexibility of the local planning processes is one of the critical decision factors that influenced Investec’s choice of jurisdiction and consequent allocation of development resources to the project.

The efforts of the South Australian Government to accommodate this requirement deserve recognition.

In particular, the development approval conditions accommodate the staging of the facility with a degree of flexibility, and enable Investec to confidently manage and configure the site to suit the final detailed design and plant configuration within the approval envelope.