UK investor hit by more big losses from Australia solar farms, sales delayed

UK infrastructure investor John Laing has been hit by yet more losses from its Australia solar farm portfolio, taking big hits from lower prices, project delays and transmission losses over the last 12 months.

John Laing had been a significant investor in Australian renewable energy assets, with a sizeable and growing wind and solar portfolio, but decided to freeze new investment in Australia after suffering deep losses in 2019 due to big and unexpected changes in so-called marginal loss factors, which slashed the amount of production it was paid for.

Last year, it sold its Australian wind portfolio, but it still owns two Australian solar farms, the 170MW Finley solar farm and the 200MW Sunraysia solar project (90.1 per cent owned), both located in south-west NSW. It now says these will not be offered for sale until next year.

“We will do more work on the financing side before they are ready for sale,” CEO Ben Loomes said of the Australian solar assets in a call with analysts in London on Thursday following the release of its calendar 2020 annual results. “We will focus on Australia (solar asset sales) in 2022.”

John Laing first hit rouble in 2019 when it took a $120 million hit to its Australian wind and solar portfolio, largely due to downgrades in marginal loss factors, and last August followed this up with losses of £43 million ($A79 million) from its two solar assets for the first half of 2020.

The full year result for 2020 shows the situation worsened, although John Laing did not break down the losses to individual or even regional assets, apart from a £10 million ($A17.9 million) loss caused by “further transmission issues in Australia” directly linked to the troubled Sunraysia solar farm.

“In the renewable energy portfolio, the modest losses from changes in macro-economic assumptions were exacerbated by reductions in power price forecasts (£101 million loss) and further transmission issues in Australia (£10 million), as well as project performance losses of £89 million, particularly on the solar assets in Australia and on the UK biomass assets, which have been written down in value,” it says.

It notes that the £101 million value reduction from lower power prices was broadly spread across the regions where its renewable energy assets are located, but £78 million of that loss was from its solar and biomass assets alone.

“In Australia, our solar assets were hit hardest, while in the US, lower power prices affected our one remaining wind farm and our solar assets,” it says.

And later it noted: “The solar assets have limited operational track records and face asset-specific challenges, including completing construction in respect of one of the assets.

“We have increased discount rates on these assets to reflect a heightened risk relative to other assets, partly due to current market volatility and uncertainty.”

The increased discount rates accounted for £39 million of losses while other items include the expected but unspecified costs of recapitalising its Australian solar assets, along with operational performance issues and higher costs.

The US solar portfolio also had issues, which account for some of the losses, but the Asia-Pacific operations of John Laing – which also include other infrastructure investments – recorded an operating loss of £23 million, which it said was “mainly due to higher losses from reductions in power price forecasts and other losses on the region’s solar assets.”

The £10 million loss from transmission issues relates to constraints on the Sunraysia solar farm, which has already suffered from connection and commissioning delays and a legal dispute between the owners, the main EPC contractor and the inverter suppliers.

“The £10 million value reduction for transmission losses primarily relates to a constraint placed on the network by the Australian Energy Market Operator to address the instability of the power system in south-western New South Wales. The effect of this is to limit the flow of power from one of our solar assets, Sunraysia.”

In 2019, John Laing was hit by significant losses of £52 million from marginal loss factors’ although the situation improved marginally in 2020 when some favourable re-ratings led to a net positive fair value movement of £4 million.