European energy giant Enel Green Power has taken a substantial hit from the ongoing production delays at what should be the biggest solar farm in operation in Australia, the Bungala solar project near Port Augusta in South Australia.
The Bungala solar farm has been built in two stages of 110MW each, and the combined capacity of 220MW should amount to the biggest solar project to be constructed in the country to date. But the second stage of the project, Bungala 2, has been held back at a hold point allowing less than 20 per cent of its output because of what Enel describes as “technical problems”
That has meant that – nearly two years after its planned full commissioning in August, 2018 – the project is still unable to deliver in full on the power purchase agreement it signed with leading Australian utility Origin Energy.
Enel now reveals, in notes to its accounts in its voluminous annual report for calendar 2019, that it has taken a hit of €43 million ($A73.5 million) to its accounts in the last year because of this.
“The negative impact of €43 million recognized by the Enel Green Power Bungala companies in Australia refers to the fair value remeasurement of the PPAs signed with customers,” the company says in its only reference to the issues. This appears to reflect a re-appraisal of the “net present value” of the contract. By making a one off charge against profits allows a potential re-evaluation further down the track.
For a company the size of Enel, with global annual revenues of more than $A120 billion, this write down is barely noticeable, but it does raise the question about whether a global giant the size of Enel – and others – will bother negotiating the political and regulatory pitfalls in Australia if there are better offers elsewhere.
Like other international investors, Enel Green Power’s parent company Enel, which also owns the Enel X demand response specialist that is playing an increasingly prominent role in Australia’s wholesale market, does not have a flattering assessment of the regulatory and political environment in Australia.
“The most important political event of the year was the federal election in May 2019, which saw the re-election of the conservative Liberal Party, which is in favour of a coal-based energy policy,” Enel notes elsewhere in its annual report.
“The election result led to a slowdown in the renewable energy market, with a significant decline in capacity under development (minus 60% compared with the investments recorded in the previous year according to BNEF). The stalemate is exacerbated by the complexity and length of connection and permitting processes,” it says.
“These developments are complicated by the uncertain outcome of two procedures (Coordination of Generation and Transmission Investment – Post 2025 Market Design for the NEM) currently under way, which could lead to the overall re- definition of the National Electricity Market (NEM).
“However, the draft decisions prepared to date by the competent authorities confirm some of the schemes deemed ineffective by most investors (e.g. management of losses on transmission networks).”
Other international investors have also been highly critical of the policy and regulatory environment, and scathing in their assessment of handling of the COGATI and MLF issues.
UK infrastructure giant John Laing has flagged write downs of more than $100 million from the value of projects it had under construction, and first signalled the suspicion of any new investment in Australia, and has now put its portfolio up for sale.
Bungala is a joint venture between two international investors – Enel and the Dutch Infrastructure Fund IV – and both have investments in other solar and large scale wind projects in Australia.
Enel is developing the small 27MW Cohuna solar project in Australia, while DIF also owns the 125MW Clare solar project in Queensland, and the 20MW Royalla solar farm in the ACT, and is involved in a joint venture project in West Australian that owns the Grassmere wind farm near Albany and the new Warradarge wind project near Enneaba.
Enel Green Power and DIF are not the only project owners and developers to suffer technical issues. “Performance issues” have been cited by Korean zinc refiner Sun Metals for the sharp downgrade in output from its Sun Metals solar farm in Queensland, now producing less than one half of its capacity.
Other solar farms are also suffering problems, either with delays to the connection process because of problems with registration or satisfying the generator performance standard, or because of congestion in certain parts of the grid.
Five solar farms in Victoria and NSW have had their output cut in half due to modelled “oscillation” problems in the case of a major transmission link failing, and more than a dozen projects in the area have had their connection delayed. Tests are now underway to test a “firmware” solution from the inverter manufacturer.
ReneweEconomy sought further comment from both Enel Green Power and DIF on Monday, but did not receive a reply from Enel before publication on Tuesday, while DIF declined to comment. Data from AEMO shows that Bungala 2 is now being allowed to lift its output to nearly 40MW, up from 20MW – indicating that the hold points are gradually being relaxed pending further tests.
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