Wind, solar projects face further delays as financiers get nervous

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Windlab says banks nervous due to project delays, cost over-runs, and tighter new standards, and this will add to cost of capital, and cause yet more delays.

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Australian renewable energy group Windlab has warned of more delays and financing challenges for wind and solar projects in Australia because of market, regulatory and political factors.

Windlab is suffering delays to two of its flagship projects – Kennedy and Lakeland – but says the whole industry has been affected by the impact of marginal loss factors, tighter technical standards on connection agreements, and policy uncertainty.

“There has been a dramatic shift to way that projects have been developed and connected to the grid, affecting many areas of the market,” CEO Roger Price told an investor briefing on Thursday.

“The market is now nervous about potential cost overruns, and the delays caused by grid connection processes and connection problems.”

Windlab noted that financiers are now insisting, for instance, that generation performance standards are now complete and agreed before they will commit funds.

The GPS used to be resolved after financial close and construction had begun. Now that it is a pre-requisite, it is causing delays to project starts, and Windlab’s proposed 100MW Lakeland wind farm in north Queensland is one of those, and is now looking at next year for a start.

Windlab has also been affected by long delays at its jointly-owned 63MW Kennedy energy hub, a world leading facility that combines for the first time on a major grid wind, solar and battery storage.

Windlab is putting the blame on the problems on its EPC contractor, and says it will receive $2.6 million for its half share of the project for the loss of revenue in the first half – suggesting the total “liquidated damages” from the delays amount to $5.2 million so far.

The project was mechanically complete in December last year, but only started generating last month. The company expects commissioning to be complete by the end of the year, despite confusion created by the Australian Energy Market Operator, which Windlab now blames on confusion about the different proposed stages of the project.

Windlab would not go into details of the issues, but it is one of many project developers experiencing delays, and being forced to call for damages payments from their contractors.

RCR Tomlinson was the biggest victim of these delays, ultimately going out of business, but numerous other contractor have also been affected, including Downer, Bouygues, and others. Infigen is the latest to report delays at its Bodangora wind facility in NSW, and has sued for $10 million in damages.

The changes in marginal loss factors, due to over-building in certain parts of the grid, is also causing problems. UK group John Laing has announced a write-down of $120 million on some of its projects in Australia and brought to a halt any further investment pending more certainty from regulators and rule makers.

“The MLF issue – maybe it shouldn’t have – but it caught a number of investors by surprise earlier in the year,” Price said

“The investment community is still trying to digest the best way to handle that issue. If the regulators don’t address it, it will affect the cost of capital. It won’t stop the transition to renewables, but it will cause more volatility.”

Windlab has also been affected by curtailment at its Kiata wind farm in Victoria, which had previously had near the highest capacity factor in the country, but – like other wind and solar projects in the area – had to be curtailed from time to time in recent months due to the need for network equipment upgrades.

Windlab, meanwhile, has announced a strategic review to try and help narrow the difference between what its board thinks is the value of the company, and how it is being rated by the market.

Over the last year, the share price has halved to the current level of 79c, and a market value of just over $53 million. Price said this is not reflective of the company’s pipeline of assets, including the potential large renewable energy projects in Africa, and Tanzania and Kenya in particular.

Windlab has hired Moelis Australia to do the review, which will include the potential of bringing in new capital investors, or to change the asset ownership model.

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