Giles Parkinson — ReNew Economy — September 1, 2014
Australian analysts have warned that some of the country’s wind farms could be forced to close down under proposals made by the Abbott government’s RET Review panel.
Insiders are aghast at the assumptions made by the panel about the possibility of closing the scheme to new entrants and providing “grandfathering” arrangements for existing assets.
They say the proposals – and the assumption that LGCs, the certificates that are the currency of the scheme – will hold value are flawed, and the panel has not considered the basic refinancing risks of all projects under any scenario.
“I’m amazed at how flawed this document is,” said one close observer. “It is internally inconsistent, it is intellectually flawed … and it doesn’t even try to cover up its bias. It is 160 pages of self-serving logic.”
Another noted that almost every wind farm in the country will be up for refinancing for next 3 years. “They will be in major financial distress, and they are all at risk of falling over.”
While wind farms in Australia can have long term power purchase agreements out to 2030, the financing arrangements are much shorter, usually around 5 years.
This means that most, if not all, wind farms, will be up for refinancing in the next few years. When that happens, the major banks will review the state of the market, and are either likely to raise the price of debt, or do an “equity sweep” – calling on project owners to invest more cash.
None are likely to do so.
And in some cases – because the value of the LGCs will be effectively zero – as Bloomberg New Energy Finance has pointed out – and the price of wholesale electricity has fallen due to the removal of the carbon price and over-capacity brought about by the construction of thousands of megawatts of gas-fired generation – many wind farms will struggle to make debt obligations under current terms.
In its report, BNEF warned that a “whole host of Australian and foreign companies and lenders could be exposed to asset impairments, and almost all will suffer significant write-downs in the mark-to-market value of their investments.” Continue reading here….