“We’re out”: Big contractor dramatically quits Australian solar sector | RenewEconomy

“We’re out”: Big contractor dramatically quits Australian solar sector

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Downer, one of the biggest contractors in the sector, dramatically quits solar construction business saying it is too hard and the risks too great.

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Beryl solar farm.
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One of the biggest contractors and constructors of large-scale solar farms in Australia, the listed constructing giant Downer Group, has signaled a dramatic exit from the solar business, saying it is too hard.

“We’re out of solar,” Downer CEO Grant Fenn told an analysts during a telephone briefing of the company’s half year earnings on Wednesday.

Fenn said the decision to withdraw from solar was disappointing, but inevitable given that the large-scale solar market had all but evaporated over the last 12 months.

“Developers, contractors and bankers all struggle to come to terms with the risk of large power loss factors, grid stability problems, connection problems, and equipment performance issues,” Fenn said..

“These problems will no doubt be sorted out in time, but right now we don’t see a construction market in the short to medium term that will accept our terms and risk position on these matters.

“So we’re out.”

The decision adds to, and highlights, the increasing woes of the Australian renewables industry, which is suffering from a dramatic slowdown in construction, partly due to the lack of federal policy, connection issues, and delays from grid congestion.

There is exasperation about the lack of planning and investment, and the perverse impact of market rules designed to favour incumbent fossil fuel businesses. After a three-year boom thanks to the renewable energy target, investment is drying up and the federal government is showing no interest in pursuing wind and solar projects, focusing only on coal and gas, and amid new calls for nuclear.

Delays and cost over-runs on wind and solar projects are occurring across the grid, mostly due to newly complex connection procedures and grid blockages. In Victoria, it has reached a crisis point with solar and wind farms being curtailed, delayed or warned not to begin construction.

Many of the delays have caused major disputes between project developers and owners and contractors over who should be responsible for cost over-runs and delays in revenue streams.

One of Downer’s big rivals, RCR Tomlinson, went bust in 2018 and was liquidated after delays and cost overruns in around one dozen large-scale solar plants, and other contractors have also been hit hard by the same issues.

These include claims for  “liquidated” damages, although one recent court decision ruled that the developer, Windlab, should pay the contractor, despite delays in its landmark solar, wind and battery Kennedy energy hub.

Downer has been involved in some of the biggest renewable energy projects in the country, including the Chichester, Numurkah, Limondale, Clare, Ross River and Beryl solar farms, and 14 wind farms since 2003 including Murra Warra, Ararat, Mt Mercer, Bango and Taralga.

Fenn also signalled that Downer will quit the wind farm construction business and focus only on wind farm “balance of  system” deals, basically just building roads within the wind farm site, as well as substations and high voltage transmission links.

Downer revealed  $71.6 million in extra spending from Murra Warra, which has been impacted by the financial crisis enveloping its turbine supplier Senvion, and a total of $29 million of losses in other renewable energy projects. That pushed operating cash flow to a negative $4 million, down from a positive $355 million over the same period a year earlier.

The company’s overall profits fell 35 per cent. Downer is a major player in the road, rail and water construction businesses, although it is also looking to sell its mining and the Spotless Services laundries business.

Fenn said many solar projects were being completed on “zero margin”. Downer will deliver on all its current contracts, including Murra Warra, the Bango wind farm, the Limondale solar farm and the Chichester solar farm in the Pilbara, which all should be finished by May next year.

Solar is not the only sectors that Downer is quitting. It is also withdrawing from coal and iron ore construction contracts, because not much is happening there. But its decision on solar is sure to have ramifications, and the risks it highlights point to rising costs – already being felt by the higher price of power purchase agreements being discussed in the industry.

“The grid issues are very complex,” Fenn said, noting the debate over whether money should be spent on major new transmission links, a business that Downer will continue, and microgrids, or both.

“The regulators are doing their absolutely best to ensure stability of grid is maintained. That is proving very difficult, and it is impacting on the solar market very significantly.

“You see it with the solar farms that have been built – volatile power loss factors outside of what they were expecting, you are seeing it with connections into grid, particularly where there are lots of solar farms

“What that means is that there is very much a hiatus of anything coming to the market.”

Fenn said the risk factor on construction – and who is held responsible for delays and cost over-runs – was a key.

“Developers don’t want to take the risk, so why would poor old contractor? So we are not doing that.

“We have still got a series of issues with equipment, particularly inverters. Sure they will be solved as fast as they can, but when I look at it for next couple of years, it is very challenged.

“The biggest issue in solar is our risk position. There is no market position because no one is closing solar deals. It is very difficult.”

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