Trustpower cuts value of biggest South Australia wind farm due to lower output

New Zealand company Trustpower has had to cut the value of newly completed Snowtown 2 wind farm after production from the 270MW facility fell nearly 10 per cent below expectations.

The company announced on Thursday that generation from the largest wind farm in South Australia would likely be 9.4 per cent below expectations, down to 892GWh from 985GWh per year.

It blamed lower wind speeds and “the limitations with industry modelling tools when applied to a site of this complexity and scale,” in particularly the use of modern large rotor turbines.

Trustpower says the lower wind production will cut earnings by around $8.5 million, leading to a cut in the valuation of Snowtown 2 by as much as $70 million.

This comes just six months after the company, on the advice of independent auditors Deloitte,  raised the book value of the wind farm by $310 million above its $A450 million cost, even though it had already reported lower wind speeds in the previous month.

The entire Snowtown project is the second-largest wind generation facility in Australia – after the 420MW Macarthur wind farm in Victoria – with a total installed capacity of 370MW. It was built in two phases, at a total cost of about $660 million.

The revised output suggests an anticipated capacity factor of around 38 per cent, still relatively high, and compared to around 27 per cent for Macarthur.

However, recent data from Green Energy Markets suggests that both the Snowtown South and Snowtown North components have been producing below that level. (The % figure to the right is year-to-date 2015, while the % figure in the third last column is output in October).

Snowtown was hailed as one of the cheapest wind farms in Australia, and is believed to have struck a power purchase agreement in the low $80/MWh – one of the lowest in Australia at the time. But Trustpower says the investment is still good value for shareholders.

“Energy yield modelling techniques are continuing to evolve to improve the accuracy of prediction, informed by research and analysis by wind industry participants and experts,” Trustpower boss Vince Hawksworth said in a statement.

“Trustpower has undertaken a comprehensive analysis in conjunction with independent engineering advisers to better understand the factors contributing to this revision and will apply these learnings, along with advances in modelling techniques, to future developments.”

Deutsche Bank analysts said they expect Trustpower to sell the Snowtown assets over the medium term and “this could be the first step in the process.”