Windlab flags big write-down on Kennedy wind-solar-battery project

The troubled saga of the Kennedy Energy Project continues as project developer Windlab announces it will likely suffer a $10 to $20 million write-down on the world-leading wind-solar-battery storage project in north Queensland because of delays in commissioning that have now run for more than a year.

Windlab revealed the impairment charge in a statement to the ASX, and said it was necessary because of the ongoing troubles in finalising connections to the grid, and its ongoing dispute with its EPC contractors over who should foot the bill, or make up for lost revenues.

The company says it expects the impairment charge to fall between the range of $10 to $20 million – compared to the current carrying value of its half-share in the Kennedy project of $28 million – but the final amount will be determined after receiving detailed independent advice.

The Kennedy Energy Park is running almost a year-and-a-half behind schedule due to failures in getting approvals for its generator performance standards, which have culminated in a contractual dispute between Windlab and the engineering, procurement and construction (EPC) contractors engaged to complete the project.

The dispute was the subject of an adjudication of the Queensland Building and Construction Commission in January after the EPC contractor sought the payment of outstanding milestone entitlements, which had been withheld due to the delays in the project.

Windlab made a counterclaim for “delay liquidated damages” – now common in the Australian market because of widespread delays in connection and commissioning – and also sought indemnity costs flowing from failures by the EPC contractor to complete the project to schedule.

Last month, the Queensland Building and Construction Commission ordered Windlab to pay $7.5 million in outstanding milestone payments and reversed Windlab’s claims for delay related damages.

Following the adjudication, Windlab and the EPC contractor have agreed to hold off from further legal proceedings until mid-March, with the hope that a suitable settlement of the dispute can be negotiated without the need to escalate matters in the courts.

“While Windlab remains confident of Kennedy’s position in relation to the dispute, including its right to receive delay liquidated damages, the short-term outcomes and path to ultimate resolution are uncertain and material to any current appraisal of the value of Windlab’s investment in Kennedy,” Windlab said in a statement to the ASX.

“Given the uncertainty, Windlab believes the approach it has taken to the valuation of the investment in Kennedy is prudent.”

While the impairment charge has been triggered by project delays and the resulting contractual dispute, Windlab indicated that part of the impairment charge also relates to changes in forecast wholesale electricity prices, following a recalculation of expected future revenues from the project.

The Kennedy Energy Park, a combined wind, solar and storage project, is a 50-50 joint venture between Windlab and Japanese energy company Eurus Energy.

The impairment charge will be reflected in Windlab’s asset sheet but will have no impact on the company’s cash holdings, or the ongoing operation of the business.

It’s not all bad news for Windlab, which revealed in a separate announcement to the Australian stock exchange that investment firm Federation Asset Management will progress plans to acquire all outstanding shares in the company.

Windlab announced that Federation had completed its due diligence assessment of the company and “wishes to progress the transaction” despite the likely write down.

The announcement triggers an extension to the ‘exclusivity period’ that allows Federation to negotiate a scheme of implementation agreement to facilitate the acquisition of outstanding Windlab shares.

Federation announced its intention to acquire Windlab in December, offering $1.00 per share for the outstanding shares in the company, valuing Windlab at around $68 million.

Windlab said that Federation had been kept in the loop regarding the impairment charge to the Kennedy Wind Park project and the current status of the project, and has evidently had no impact on its intention to progress the acquisition.

While the acquisition is not yet guaranteed, Federation confirmed that it remains willing to negotiate the necessary documentation required to facilitate the acquisition.

Federation Asset Management already holds an 18.3 per cent stake in Windlab, which it acquired from early investors Innovation Capital.

Windlab was founded in 2003 as a spin-off from the CSIRO, in a bid to commercialise and utilise wind-farm optimisation software developed by the research institution.