Shares in Downer EDI slumped sharply on Wednesday after the listed contracting group said it was assessing any potential financial impacts caused by its partner and turbine supplier for construction of the massive Murra Warra wind farm in Victoria going into administration.
The German company Senvion, as we reported last month, went into administration and later secured interim funding as it sought to recalibrate its business and focus on certain markets, including Australia. But the financial woes raised concerns about the impact on projects in Australia.
The ASX-listed Downer’s said in a statement this week that good progress was being made on the first 226MW stage of 429MW Murra Warra project, located near Horsham in central Victoria, but it said it was still assessing whether Senvion’s troubles would have any financial impact on Downer.
Senvion is responsible for the manufacture, transport, erection and commissioning of the project’s turbines while Downer is responsible for balance of plant works.
Downer says around 95 per cent of its own balance of plant work had been completed on schedule and on budget, and 26 of the 61 wind turbine generators had been erected.
All remaining towers and blades were said to be either at the manufacturer’s premises, the port, or the Murra Warra site. Meanwhile, three of 61 nacelles were being manufactured, a further three were completed, and the remainder were either in the country or in transit to Australia.
“Work is continuing to progress on site and Downer has initiated discussions with Senvion’s court appointed Custodian and other key stakeholders, including Partners Group (the owner of the wind farm), to establish a process for securing delivery of outstanding equipment and completing Stage One,” the ASX statement said.
However, the shares slumped by up to 10 per cent on Wednesday, partly on concerns raised by the announcement and the potential for losses, and also because of a downgrade to an underperform rating by analysts at Credit Suisse, based on the administration proceedings in Germany.
A number of contractors have fallen foul of the renewables construction boom in Australia.
One of Downer’s biggest rivals, RCR Tomlinson, collapsed under the weight of project cost over-runs and delays and cash flow issues at most of the dozen or so solar projects it was building, while Tempo Australia has suspended its shares as it seeks a solution to potential cost blowouts at its first solar project, the Cohuna solar farm in Victoria.
A number of other engineering and contracting firms have also been hit by bloated costs and penalty payments, mostly arising out of delays or additional costs caused by strict new connection rules.
Downer has also built a number of solar farms and says it has escaped these issues, and in February also revealed a $10 million blow out in costs at the 100MW Clare solar farm in Queensland, but said its other projects were under control.
*Stage One of Murra Warra is valued at approximately $380 million, with Downer’s contract value approximately $100 million.
“As … discussions continue, along with the self-administration process, Downer will be assessing whether there is any potential financial impact on Downer and consequently any impact on its guidance for the 2019 financial year,” the statement said. “Downer will keep the market updated.”
Murra Warra will be one of the biggest wind farms in Australia, and will provide some of the lowest cost contracts, and has signed up Telstra, and a consortium of customers that includes ANZ, Coca Cola Amatil and the University of Melbourne, as well as Monash University.
*CORRECTION: A previous version of this article incorrectly stated that Murra Warra was jointly owned by Macquarie Group and renewable energy developer RES Australia. It is not. A separate project, Murra Warra Stage II Wind Farm is owned jointly by Macquarie and RES.
