Australian Wind Industry Hits the Wall: Claiming “Uncertainty” the Big KILLER

When things are out of control, the inevitable happens.

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Clean energy spending plunges on RET uncertainty
The Australian
Sarah-Jane Tasker
13 January 2015

NEW clean energy investment in Australia has dropped to its lowest level since 2009, falling 35 per cent to $4.6 billion, driven by un­certainty over the renewable energy target.

A severe downturn in large-scale asset financing helped push the figure lower, according to Bloomberg New Energy Finance, which published the results.

Large-scale asset financing slid 88 per cent to just $240 million in 2014, reaching a low not seen since 2002, when the country’s renewable energy target was 2 per cent.

Australia’s efforts in renewable investment mean it has dropped behind Honduras, Costa Rica and Myanmar after sliding from 11th-largest investor in large-scale clean energy projects in 2013 to 39th in 2014.

Bloomberg New Energy Finance outlined that other resource-intensive economies, such as Canada, Brazil and South Africa, had each invested more than 20 times as much in large-scale clean energy as Australia in 2014.

Kobad Bhavnagri, head of Australia at Bloomberg Energy Finance, said the severe downturn in large-scale investment had been caused by the federal government’s review of the renewable energy target, which had made the sector practically uninvestable.

“Its controversial review panel recommended scrapping the target or radically diminishing it in August 2014, but the government is yet to announce a position that can gain approval of the parliament and restore confidence to the sector,” he said.

While Australian investment languished, global investment in clean energy was up 16 per cent to $310bn last year.

Michael Liebreich, chairman of the advisory board for Bloomberg New Energy Finance, said healthy investment in clean energy might surprise some commentators, who had been predicting trouble for renewables as a result of the oil price collapse since last summer. “Our answer is that 2014 was too early to see any noticeable effect on investment, and anyway the impact of cheaper crude will be felt much more in road transport than in electricity generation,” he said.

Solar made up almost half of total clean energy investment in 2014 globally, its highest share ever. Investment was up 25 per cent to $149.6bn, while investment in wind rose 11 per cent to a record $99.5bn.

Australia’s total clean energy investment figures in 2014 were propped up by about $2.3bn of spending by households and businesses on small-scale solar photovoltaic systems and preliminary estimates for spending on energy smart technologies and government research and development.

Bloomberg New Energy Finance said these figures were ­likely to be revised down in coming months as more data came to hand.

The overall figure on renewable investment in Australia was in contrast to its major trading partners, including China, which spent $US64.4bn ($79.1bn), the US $US12.9bn, Britain $US10.7bn, Japan $US5.3bn, India $US4.5bn and Indonesia $US1.8bn.
The Australian

Funny how it’s only the wind industry that’s licenced-to-whinge about dreaded “uncertainty”. But it’s a bit like punters going to the racetrack and complaining that the hundred-to-one shot they backed with the housekeeping money failed to finish.

They told me it was a dead-cert.

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The eco-fascists that back and profit from the great wind power fraud keep telling us that wind power is competitive with conventional generators and – wait for it – is even competitive with coal-fired power.

Which begs the question: if wind power is truly competitive, then why all the worry about “uncertainty”?

On the wind industry’s case, it has the perfect product which can be delivered 24×7, every single day of the year – which “saves” the planet and is practically “free”. So why aren’t retailers beating a path to their door?

The bad news is that things will be a bit touch-and-go today,
but the good news is that the wind will, probably, pick up tomorrow.

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There is, however, one ABSOLUTE “certainty” when it comes to wind power: wind power outfits will never, ever amount to viable business propositions.

In the absence of a guaranteed and massive stream of taxpayer and power consumer subsidies – like that set up under the Large-Scale Renewable Energy Target (LRET) – and the LRET’s threat of a $65 per MWh fine aimed at coercing retailers to buy wind power in order to get RECs and avoid the fine – the wind industry would collapse in a heartbeat – and near-bankrupt outfits like Infigen would be erased from our collective memories like a very bad dream.

My god, it was all just a very bad dream…

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Any reduction in the LRET will result in a fall in the REC price and, therefore, threaten the viability of every established wind farm; witness IFM Investor’s recent $685 million profit forecast write-down due to the collapse in the value of its Pac Hydro wind farm investments. Pac Hydro has had $220 million knocked off its value due to “uncertainty” surrounding the LRET (see our post here).

As the story above howls, the wind industry’s subsidy-fuelled mission to cover every last corner of Australia in giant fans is in melt down (and, for more of the same, see this hysterical article in which the wind industry’s top spin-king, Kane Thornton from the Clean Energy Council is reduced to tears).

Investment in new wind farms has ground to a halt, as banks get ready for more wind farm asset write-downs; the risk of outright collapses among wind power outfits; and prospective investors look elsewhere – for very good reasons (see our post here).

In Australia, wind farm construction is almost at a standstill: “investment” in the construction of wind farms went from $2.69 billion in 2013 to a piddling $40 million last year (see this article).

There are a handful still being speared into a couple of spots around the Country (Bald Hills and Cape Bridgewater in Victoria; Boco Rock, NSW). The hucksters and fraudsters that are seeking to pocket $50 billion in REC Tax/Subsidies at power consumers’ expense are watching their plans for fans crumble before their beady, greedy little eyes.

Power retailers haven’t signed any power purchase agreements (PPAs) with wind power outfits for well-over 2 years – without which wind power outfits will never get the finance to plant another turbine: FULL STOP.

Banks were willing to lend to Infigen, Pac Hydro & Co while they were signing PPAs, because that agreement provides a guaranteed stream of cash in future (it incorporates the net present value of a future stream of electricity sales and, much more importantly, REC income).

The PPA itself was, therefore, viewed by commercial lenders as a reasonable form of security for credit extended to a developer holding a PPA.

But, without a PPA, Infigen, Pac Hydro et al have nothing of meaningful value to offer the banks. That cold, hard commercial fact of life means that the wind industry in Australia will go the way of the dodo.

STT hears from insiders that – whatever happens to the LRET during the life of this Federal government – retailers are not going to enter PPAs; the banks are not going to lend for any new projects; and the banks that have lent, are all looking to call in their loans as and when the terms of their current lending facilities expire (the bulk of them expire in 2015/2016).

After which, wind power outfits will need to refinance on terms reflecting the very real RISK that the LRET will either be scaled back, scrapped, or inevitably collapse, at some point in the near future – as the completely unsustainable economic debacle that it is. That means either substantially higher rates or no-finance at all.

And “uncertainty” isn’t just slamming the wind industry to the wall in Australia. Oh no, it’s resulted in the collapse of more than 120 wind industry suppliers in the past two years, “including 88 from Asia, 23 from Europe and 18 from North America” as this piece from CNN details.

Industry Shake Up as Policy Uncertainty Forces a Quarter of Businesses Out of the Wind FTI Intelligence Releases Its Global Wind Supply Chain Update 2015
CNN Money
12 January 2015

LONDON, Jan. 12, 2015 (GLOBE NEWSWIRE) — FTI Consulting, Inc. (NYSE:FCN), the global business advisory firm dedicated to helping organisations protect and enhance their enterprise value, today announced the release of FTI Intelligence’s latest renewable energy publication, Global Wind Supply Chain Update 2015. This report is part of a series of data-driven publications evaluating competitive markets, policy, finance, technology and business models across the energy spectrum.

The report, Global Wind Supply Chain Update 2015, examines the supply chain situation for 12 key components (350+ suppliers) and three key materials (150+ suppliers), which account for more than 95 percent of a wind turbine’s total cost. In addition to the specific components and materials, it also includes an assessment of offshore wind farm balance of plants, a summary of supply chain strategies for the world’s top 15 turbine original equipment makers (OEMs) and FTI-CL Energy experts’ demand forecast for global wind market growth through 2018. The report is authored by members of the FTI-CL Energy practice, a cross-practice team of energy experts from both FTI Consulting and its subsidiary, Compass Lexecon.

The key findings of the report include:

• More than 120 suppliers have collapsed or stayed out of the wind business in the past two years, including 88 from Asia, 23 from Europe and 18 from North America.
• A prolonged market contraction has forced major turbine OEMs to divest in-house non-core production assets and opt for extensive outsourcing in order to insulate from market fluctuations while remaining profitable.
• Most key components and materials are still facing overcapacity, but the regional distribution for key materials such as rare earth elements and forgings is extremely uneven and bottlenecks are expected on ultra-large tapered roller bearings (“TRB”) as these have gained popularity in China with almost all direct drive designs.
• Competition is now taking place not only on product quality and price, but also requires suppliers to provide value-added products and services to assist turbine OEMs and the end users to bring down the levelized cost of energy (LCOE) in order to compete with conventional energy sources.
• The uncertainty around the PTC leads FTI-CL Energy’s experts to conclude that the industry setback is most likely to retain in the U.S., and more Tier 2 and Tier 3 suppliers are likely to disappear in the next two to three years due to the expected collapse of Tier 3 turbine OEMs in China.
• There is a delicate balance in the offshore wind supply chain at present, but challenges remain in the medium-term. One third of the cost reduction of offshore wind energy partially relies on supply chain industrialization for disruptive technologies and key elements including the offshore wind balance of plant. This ambitious target is, however, unlikely to be achieved without long-term market stability.
• The operations and maintenance (O&M) market provides relatively clear market visibility going forward and many key components suppliers are entering into this segment, so heightened competition is expected.

“The wind industry has been in the process of transformation since 2011 and the global wind supply chain is not matured yet,” explained Feng Zhao, Director at FTI Consulting and Head of Wind Energy within the FTI-CL Energy practice. “The exit/non-participation of so many suppliers delivers a dangerous signal to governments. To bring wind towards a position where it can compete head-to-head with conventional energy sources, it is imperative to find a balance between maintaining attractive and certain policy and reducing the burden on governments and consumers caused by paying renewable energy subsidy.”

“The challenging economic and political climate has forced large wind turbine vendors to shed low value assets and to opt for outsourcing” says Aris Karcanias, Managing Director at FTI Consulting and Co-Lead of the Company’s FTI-CL Clean Tech practice in Europe. “Large turbine OEMs have adopted lean organization models from other industries to deal with market instability and increase flexibility and capacity utilization.”
CNN Money

The LRET is simply unsustainable. Any policy that is unsustainable will fail under its own steam; or its creators will be forced to scrap it. It’s a matter of when; not if.

And when it goes – the only sounds that will be heard will be rust growing on collapsing turbines and liquidators rubbing their hands with glee. Oh dear, how sad, never mind.

As Neil Young once wailed, there is at least one certainty in life:
Rust Never Sleeps.