Frontier Energy flagged as potential renewable energy investment

Investors seeking exposure to the renewable energy sector may find Frontier Energy Ltd (ASX: FHE) a compelling option. Brokerage firm Bell Potter has expressed a strong positive outlook on the company, identifying it as a potentially top-tier choice for investors with a significant appetite for risk.

Waroona Renewable Energy Project details

Frontier Energy is currently developing the Waroona Renewable Energy Project, situated on 830 hectares of freehold land approximately 120 kilometers south of Perth. A notable strategic advantage highlighted by Bell Potter is the project’s close proximity, just 500 meters, to the Landwehr terminal. This terminal serves as a 330kV grid connection point, positioned within one of Western Australia’s most robust transmission corridors.

The company has secured all necessary major approvals, permits, and access to network connections required for the project’s development.

Project timeline and revenue projections

Construction for Stage One of the project, which includes a 132MWdc solar farm integrated with an 81.5MW battery capable of 6.9 hours of storage, is slated to commence in the second half of 2026. This hybrid facility is designed to capitalize on higher intraday electricity prices during peak demand periods.

Revenue streams are supported by Western Australia’s unique Reserve Capacity Mechanism, which guarantees $32 million annually until 2032, with a subsequent transition to a floating price per megawatt. Furthermore, the Federal Government’s Capacity Investment Scheme is in place to mitigate any potential downside revenue risks.

Future expansion plans are ambitious, aiming to increase overall solar generation capacity to approximately 1GW, complemented by a battery storage system of around 650MW.

Western Australia’s energy market outlook

Analysis indicates that Western Australia is projected to experience a shortfall in electricity supply during peak demand periods over the next five years. This is attributed to an expected exit of approximately 1.7GW of thermal generation from the Wholesale Electricity Market.

Investment recommendation and valuation

Bell Potter has issued a speculative buy rating for Frontier Energy shares, setting a price target of 35 cents. Based on the current share price of 24 cents, this suggests a potential upside of 46% for investors over the coming 12 months.

In a recent assessment, Bell Potter stated, “We transfer coverage on FHE and maintain our Buy (Speculative) recommendation. Our Valuation is reduced to $0.35/sh as we incorporate dilution from a $110m equity raise. FHE owns a strategically important site crucial to WA’s energy transition.”

The brokerage firm further elaborated, “Significant investment in generation and storage are required to offset power station retirements and demand growth in WA. As supply exits the market, we expect peak prices to rise noting that ~70% of peak period generation is still supplied by thermal energy. FHE’s operating model benefits from these higher pricing outcomes whilst also receiving State and Federal Government revenue support.”