The Clean Energy Council has expressed concern about the declining number of major contracting firms in the last two years, as the impacts of increasingly complex connection hurdles and over aggressive bidding continues to take its toll on the sector.
Over the past month, two major firms that operated in many of the large scale solar projects (R&L Solar) or were a jar player in the commercial and industrial space (Todae Solar), have called in voluntary administrators.
It follows two years of aggressive expansion, retreat and failure in the contracting business, with one major company, RCR Tomlinson, going bankrupt, and others, including Australian companies Downer Group and Decmil, and international players such as Biosar, either quitting the Australian market altogether or retreating from major contracting and taking only low risk projects.
The ructions in the industry has taken its toll on renewable energy developers, with an increasing number of write-downs on the value of assets and loss of income, and on smaller contractors, family owned businesses and local communities who have also missed out. See our story: Hung out to dry: The dark side of big solar
The issues raised in that story have raised concern about the sustainability of the sector, the risk of rising costs, and the ability to deliver on the huge number of projects that will need to be built to deliver on the energy transition forecasts as coal plants exit the grid and are replaced by a mixture of wind, solar and storage.
“The renewable energy industry will need a strong and sustainable civil and electrical contracting sector to deliver the 26 GW of clean energy capacity that we have to build by 2040,” Anna Freeman, the director of energy generation at the Clean Energy Council, told RenewEconomy in an emailed statement..
“The Clean Energy Council has been concerned to see the failure or retreat of a significant number of contracting firms – EPCs – over the past two years from the large-scale solar sector.
“The underlying factors are complex, but a number of EPCs have been caught out – particularly early in the development of the sector – by the unexpected difficulties in completing grid connections. These complex and highly uncertain grid connection processes persist.”
Indeed, it is fascinating to see the response from industry participants to stories published by RenewEconomy on the contracting and connection woes. Industry insiders are keen to blame – in roughly equal proportions – aggressive bidding, bad decisions by contractors or developers, the lousy regulatory regime, and overly complex and changing connection rules.
“The renewable energy industry is highly competitive, and there appears to have been instances of aggressive bidding and negotiation practices for new projects which have resulted in some contractors facing significant financial exposure where projects encounter unforeseen challenges,” Freeman says.
“This risk is then passed through the supply chain.
“Financial failure of businesses has a significant impact on all stakeholders – the proponents, the asset owners, the EPCs, their workers, subcontractors, suppliers and the host communities – and we must look to minimise this from occurring where at all possible. It ultimately drives up the cost of the transition and results in unacceptable damage to businesses and communities we need to support a successful energy transition.
“The CEC will be working with its members over the coming months to explore what changes are needed in order to put the EPC sector on a more sustainable footing that can serve the industry’s growth ambitions over the long term.”
The first creditors’ meeting for R&L Solar was hosted last week by voluntary administrator Pitcher Partners, which is seeking to resolve issues at the seven large solar projects where the company was working before it abruptly called to a halt earlier this month.
- According to Pitcher Partners, about 250 employees are owed a total of $1 million, mostly in wages, the ATO is owed $2 million, and another 50 or so equipment hire and rental creditors are owed another $1 million, while a related entity from Singapore is owed $1.52 million.
- The project operator for Melbourne Airport – where R&L was working on a 12MW project – has paid all funds owing and is in the process of rehiring most of the 35 odd R&L staff. The construction has now resumed.
- The operator of the Chichester project (Christmas Creek solar farm) has released some funds and are looking to press on, and emergency accommodation has been found for those workers who made their way to Perth.