IFM takes $600m hit on renewables

A write-down on portfolio company Pacific Hydro is expected to bring down the value of the firm’s Australian Infrastructure Fund by 5%.

Melbourne-based IFM Investors (IFM) has taken a A$685 million (€476 million; $602 million) write-down on its renewables business Pacific Hydro.

The drastic change in valuation was partly caused by the recent revision of Australia’s renewables energy target (RET) scheme, as recommended by a review delivered by businessman Dick Warburton last August.
Brett Himbury, chief executive of IFM, also said in a statement that revenues had suffered due to weaker electricity demand.

“Pacific Hydro has had its valuation impacted by a number of factors, including continued policy uncertainty around the RET and the renewables sector in general. Additionally, there has been a lowering of energy demand forecasts in Australia and without government policy electricity demand will continue to be met by coal for the foreseeable future.”

Australia hosts 11 of the 18 assets managed by Pacific Hydro, which also owns five plants in Chile and two in Brazil. As at end June 2013 the developer’s portfolio comprised about 920 megawatts (MW) of hydro, wind, solar and geothermal power projects, including 302MW in Australia.

The Warburton review recommended two possible options to the Australian government: either close the RET scheme to new entrants and shut it by 2030 or modify the target so that it now represents a “real 20 per cent” of actual electricity demand by 2020. Both outcomes would negatively impact the renewables sector.

Pacific Hydro has assumed the second option in its new valuation, which implies a reduction in the annual production of renewable energy in 2020 from 41,000 gigawatt hours (GWh) to around 27,000GWh.

Concerns have also emerged about lowered electricity consumption, with the Australian Energy Market Operator slashing its forecasts for electricity demand over the next decade last June. The combined impact of regulatory and market changes is said to account for A$220 million of Pacific Hydro’s lowered valuation.

The write-down is expected to result in a 5 percent decline in the value of IFM’s Australian Infrastructure Fund, the sole shareholder in Pacific Hydro.

“As with all portfolios, not every investment will outperform at all times,” Himbury said. He added that the vehicle is still one of the strongest performing infrastructure funds in Australia.