‘Foreseeable risks’ in Australian renewables have expanded: Tilt Renewables

‘Unanticipated concerns’ from AEMO over Dundonnell Wind Farm caused Tilt to signal that it will fall below its earnings guidance range this year.

The chairman of dual-listed Tilt Renewables has said that investing in new renewable energy generation in Australia is “challenging” in the current regulatory environment, with risks increasing.

Chairman Bruce Harker made the statement at Tilt Renewables’ 2020 annual meeting this week, after the company flagged in July that unforeseen grid connection issues related to its Dundonnell Wind Farm would cause it to fall below its forecast earnings guidance range that was provided to the market in May 2020.

Tilt has successfully overseen the installation of all 80 turbines at the 336MW Dundonnell Wind Farm in Victoria, but commissioning had progressed to the point where only 113MW of output could be provided to the grid due to concerns from the Australian Energy Market Operator.

The firm said in July that it was in discussions with AEMO about addressing its “unanticipated concerns” that would allow the wind farm to increase output to its full capacity.

At its annual meeting this week, Tilt said that it followed the prescribed process for grid connection in Victoria prior to financial close and had achieved registration as a market participant in March 2020 following extensive due diligence from AEMO.

However, AEMO then “subsequently and unexpectedly raised concerns associated with the wider electricity network” and began further exploring aspects of Dundonnell’s technical performance in light of those concerns, Tilt said.

The firm is now working with AEMO on adjusting plant performance, targeting further capacity hold points of 226MW and 300MW on the way to the wind farm reaching its full capacity by the end of 2020.

Harker signalled that new investment decisions in Australia would be unlikely unless increased clarity over grid connection was provided by AEMO and regulators.

He said: “Last year I commented that: ‘The Australian market requires a good deal of detailed technical and institutional knowledge to avoid unforeseeable risks.’ I think there was some understatement in those words.

“Foreseeable risks have expanded somewhat and now require an even higher level of diligence on actual AEMO performance requirements before an investment commitment.

“We expect that new project investment decisions will be challenging until clarity is provided to participants, prior to their project commitment, as to what performance is required for grid access, and for progress through hold points to full operational status.

“We are pleased to be working closely and co-operatively with AEMO as we work to close out remaining limitations on grid access for Dundonnell Wind Farm. Tilt Renewables will be disciplined in ensuring grid connection and access processes meet our criteria for ‘investable’ as part of bringing further projects to an investment decision.”

Tilt Renewables is dual-listed on both the Australian and New Zealand stock markets and its majority shareholder is Infratil, itself a dual-listed infrastructure investor with a portfolio including renewable energy generation, airports, digital infrastructure and social infrastructure assets.

Infratil was founded by Morrison & Co in 1994 and its assets are still managed by the firm.

Infratil holds a stake of approximately 65 percent in Tilt Renewables. In 2018 it joined with fellow shareholder Mercury, which holds around 20 percent of Tilt’s shares, to acquire the remainder of the shares in Tilt that the two investors did not already own and take the company private.

The takeover eventually failed in November 2018, with Tilt’s independent directors not recommending the Infratil-Mercury bid. The consortium was unable to reach the 90 percent threshold required to compulsorily acquire the rest of the shares, so Tilt remained listed on both the ASX and NZX.

The remarks by Tilt’s chairman are the latest sign of ongoing concern over grid connections for renewable energy projects in Australia, which is hampering investment.

Market sources, including an investor and a consultant, told Infrastructure Investor this month that several investors still harbour concerns about marginal loss factors and other proposed changes to the operation of the country’s National Electricity Market.