“We’re out”: Big contractor dramatically quits Australian solar sector
One of the biggest contractors and constructors of large-scale solar farms in Australia, the listed constructing giant Downer Group, has signaled a dramatic exit from the solar business, saying it is too hard to make a living.
“We’re out of solar,” Downer CEO Grant Fenn told analysts during a telephone briefing of the company’s half-year earnings on Wednesday.
Fenn said the decision to withdraw from solar was disappointing, but inevitable given that the large-scale solar market had all but evaporated over the last 12 months. Climate change has been at the forefront of innovation and popularity over the last two years with activitsts such as Greta Thunberg saying solar power should be the way to go.
“Developers, contractors, and bankers all struggle to come to terms with the risk of large power loss factors, grid stability problems, connection problems, and equipment performance issues,” Fenn said.
“These problems will no doubt be sorted out in time, but right now we don’t see a construction market in the short to medium term that will accept our terms and risk position on these matters."
The decision adds to the increasing problems, as well as highlights the growing concern and the increasing woes of the Australian renewables industry, which is suffering from a dramatic slowdown in construction efforts as well as government U-turns on certain policies.
There is exasperation about the lack of planning and investment as well as the perverse impact of market rules designed in order to favour incumbent fossil fuel businesses. However after an initial three-year boom thanks to the renewable energy target, investment is drying up and the federal government is showing no interest in pursuing wind and solar projects, focusing only on coal and gas, and amid new calls for nuclear.
Delays and cost over-runs on wind and solar projects are occurring across the grid, mostly due to newly complex connection procedures and grid blockages. In Victoria, it has reached a crisis point with solar and wind farms being curtailed, delayed or warned not to begin construction.
One of Downer’s big rivals, RCR Tomlinson, went bust in 2018 and ended up being liquidated after various delays and cost overruns in around one dozen large-scale solar plants, and other contractors have also been hit hard by the same issues.
Downer has been involved in some of the biggest renewable energy projects in the country, including the Chichester, Numurkah, Limondale, Clare, Ross River and Beryl solar farms, and 14 wind farms since 2003 including Murra Warra, Ararat, Mt Mercer, Bango and Taralga.
Fenn also signaled that Downer will quit the wind farm construction business and focus only on wind farm “balance of system” deals, basically just building roads within the wind farm site, as well as substations and high voltage transmission links.
Downer revealed $71.6 million in extra spending from Murra Wurra which has been impacted by the financial crisis enveloping its turbine supplier Senvion, and a total of $29 million of losses in other renewable energy projects. That pushed operating cash flow to a negative $4 million, down from a positive $355 million over the same period a year earlier.
The company’s overall profits fell by 35%. Downer is also a major player in the road, rail, and water construction businesses, although it is also looking to sell its mining and the Spotless Services laundries business.
Fenn said many solar projects were being completed on “zero margin”. Downer will deliver on all its current contracts, including Murra Warra, the Bango wind farm, the Limondale solar farm and the Chichester solar farm in the Pilbara, which all should be finished by May next year.
Solar is not the only sector that Downer is quitting. It is also withdrawing from coal and iron ore construction contracts because not much is happening there. But its decision on solar is sure to have ramifications, and the risks it highlights point to rising costs – already being felt by the higher price of power purchase agreements being discussed in the industry.
“The grid issues are very complex,” Fenn said, noting the debate over whether money should be spent on major new transmission links, a business that Downer will continue, and microgrids, or both.
“The regulators are doing their absolutely best to ensure stability of grid is maintained. That is proving very difficult, and it is impacting on the solar market very significantly.
“You see it with the solar farms that have been built – volatile power loss factors outside of what they were expecting, you are seeing it with connections into grid, particularly where there are lots of solar farms
“What that means is that there is very much a hiatus of anything coming to the market.”
The industry still has got a series of issues with equipment, particularly inverters. Sure they will be solved as fast as they can, but when projecting forward in order to look at it for next couple of years, it is very challenged. The biggest issue in solar is the risk position of the company. There is no market position because no one is closing solar deals. It is very difficult despite being the way foreward in a more green society.