Carnegie dealt huge blow, as WA govt pulls plug on Albany wave funding

The Western Australian government has terminated a $16 million contract it signed with Carnegie Clean Energy to build a wave farm off the coast of Albany, dealing a new and potentially significant blow to the struggling renewable energy developer.

The decision by the state government will raise concerns about the future of Carnegie, whose shares remain suspended after failing to produce its accounts on time, and then revealing a bottom line loss of $45 million as it took write downs on the value of its CETO wave technology, and its solar micro-grid business.

Carnegie’s shares have been hammered because of the fallout of what has proved to be a disastrous foray into the solar and micro-grid business – clearly paying way too much for Energy Made Clean – and because of changes to the federal R&D allowance, which created uncertainty for its technology.

Ironically, the blow was delivered by regional development minister Alannah MacTiernan, who served as a director on the board of EMC between 2011 and 2013.

The proposed 20MW Albany wave project, which was promised a total of $19.5 million in state government funding in an election commitment ahead of the March 2017 WA election, was to be aligned with the region’s existing infrastructure, including an operational wind farm.

The flagship project was to use Carnegie’s CETO 6 technology – considered one of the most advanced – to tap what it said was one of the most consistent wave power resources in the world.

But clouds began to gather in October last year, when the McGowan government gave Carnegie nine weeks to clarify its finances in light of proposed changes to federal government tax incentives that “threatened” the company’s bottom line.

According to Carnegie, this funding plan was submitted subsequent to 31 December 2018. Three months later, however, has declared Carnegie financially unable to complete the project – “for reasons outside their control.”

“The unexpected proposal to change Federal R&D tax concessions created an environment of uncertainty that destabilised the company’s finances,” MacTiernan said in a statement.

“Carnegie’s finances were in good order when the contract was signed and there was no way to predict the changing circumstances over the last 12 months.

“Research and development projects always carry risk, and our Government won’t apologise for supporting local renewable energy R&D.

“We are committed to diversifying regional economies, and this project was just one in a suite of initiatives to drive new job opportunities in the regions.

“Our Government remains committed to research and development to ensure WA is a technology maker, not a technology taker – The University of Western Australia will continue its research work in Albany, which has already attracted scientists to the region.”

In a statement via the ASX, Carnegie said it was “disappointed with this decision” because a revised Project Funding Plan it provided in February had outlined plans to deliver the Albany Project over an extended timeline and with a reduced budget.

The company said the additional time would have allowed it to incorporate a number of design innovations into the CETO unit to be deployed in Albany, that would have reduced the capital cost of the project, and the long term levelised cost of energy.

Carnegie has suffered through a tough couple of years, including cost blowouts at its solar and battery hybrid projects, and culminating in this month’s trading halt.

In a company update last Wednesday, Carnegie said it would remain in suspension pending an announcement regarding a strategic review of its operations including the Energy Made Clean business and a fundraising initiative. It flagged a return to trading on Wednesday – tomorrow.

In its half-year results announcement – the late arrival of which sparked the trading halt – new CEO Jonathan Fievez said that the value of the company’s intangible assets had been slashed by more than half, off the back of EMC losses and negative publicity around the Albany project.

“As a result of the reduction in market capitalisation, caused largely by Energy Made Clean (EMC) business losses, major Shareholder on market share sales and negative media publicity surrounding the Albany Wave Energy Project Grant Funding, the Board has taken the opportunity to reduce the carrying value of Intangible Assets to be more in line with the Market Capitalisation of the Company and be consistent with prevailing accounting standards,” he said.

“Intangible Assets have been written down at 31 December 2018 to $15 million, resulting in an impairment (write down) of approximately $35 million.”

Last year also saw the exit of the company’s CEO of 10 years, Michael Ottaviano, as well as company director Mark Woodall. On a more positive note, the company did have some key successes in 2018, including the “98 per cent” completion of its Garden Island Microgrid.

Still holding the fort alongside Fievez, who was Carnegie’s chief technology officer before taking over as CEO, is non-executive chair Mike Fitzpatrick, an AFL luminary and keen cleantech investor whose company HFM Investments extended a $2 million unsecured finance facility to prop up Carnegie in November 2018.

In its statement today, Carnegie said the “significant new development” would now be incorporated into the strategic review that was currently underway, and that it would update the market “in due course.”