GREEN DEALS: TRU confessions

TRUenergy’s IPO appears off the agenda until 2013 as Yallourn flooding hits its bottom line; Geodynamics' costly delay to drilling plans puts Origin on the outer; a major deal in the solar sector could be imminent; and the $1 billion Bango wind farm is cut in half.

TRUenergy IPO, Stony Gap wind farm

Speculation has continued to flow about a potential IPO of half of TRUenergy by its parent CLP Group. And finally, a little clarity is available from the company – rather than newspaper rumours – with a float in 2012 all but ruled out.

“Whilst a listing is an option for serious consideration, we have not yet taken any decision as to the principle, terms or timing of any such step. In any event, we do not envisage that any listing would take place this year,” CLP chairman Sir Michael Kadoorie told investors yesterday.

The decision may be a mild surprise for some, but as Green Deals reported in June, the flooding of its key Yallourn mine and impact on the associated power station, coupled with mixed market conditions and a re-branding in Australia, meant plans for a 2012 float were always questionable.

The IPO would likely be the largest in Australia since the QR National float in 2010 and could raise as much as $3 billion.

Last night’s news also came with a long awaited update on the financial impact of the Yallourn flooding and it wasn’t pretty. The incident was listed as costing $HK644 million ($A79.2 million), but this alone does not represent the total cost, as the company had to cover the gap in its supply through other generators in the portfolio and purchases from the pool market at “higher costs than would have been the case had Yallourn remained in full operation.”

The incident contributed to a 77.5 per cent fall in operating earnings for the half-year in its Australian operations, although other factors also played a role.

“This (drop) was due to unfavourable mark-to-market movements of energy contracts because of falls in forward prices (in particular NSW cap prices as a result of lack of market volatility), lower pool prices, higher operating costs following the NSW acquisition and reduced generation revenue from Yallourn after the mine incident,” the company said in a statement.

Meanwhile, TRU is not giving up on its Stony Gap wind farm plan without a fight. The rejected 41-turbine proposal near Clare (north of Adelaide) will be appealed in the Environment, Resources and Development Court, according to the ABC.

Stony Gap was the first wind farm knocked back by a local council since new regulations were passed in South Australia.

Geodynamics, Origin

ASX-listed Geodynamics, a leader of the fledgling Australian geothermal sector, has informed investors of delays to its current drilling program at its flagship Innamincka Deeps Joint Venture project.

The 22 day delay was due to the ‘reverse cementing operation’ at its Habanero 4 well, the first time such an operation has been pursued in Australia. Drilling will be completed by the end of August, but it has caused costs to lift to around $50 million – $1.5 million above the authorized amount agreed with Origin Energy, its JV partner. Origin has now exercised its right to not contribute to any further costs. As a result, Geodynamics will face an extra $2.76 million in costs than budgeted, but expects to have no issues absorbing the additional outlay.

“It is disappointing we have encountered delays that have led us to exceed our agreed budget,” Geodynamics CEO Geoff Ward said. “Geodynamics is committed to completing the well to high safety and operational standards so that we can progress the planned testing and demonstration program including the trial of the 1 MWe Habanero Pilot Plant later in this financial year.

“Geodynamics remains well funded to complete the well and is able to absorb the incremental cost of Origin’s decision to cease participation within existing funding and without prejudicing our ability to complete the remainder of our proposed well and testing program.”

While nothing much has changed for now, it does call into question Origin’s commitment to Geodynamics, especially given a key player behind Origin's move into the geothermal company (Andrew Stock) has recently left the company. Stock was Origin's Director, Executive Projects but retired in June and is now serving on the board of the Clean Energy Finance Corporation. It was during Stock's time as Executive General Manager, Major Development Projects that Origin became deeply involved in Geodynamics. He is still listed as a Geodynamics board member.

Hanwha, Q-Cells

South Korean conglomerate Hanwha is looking to buy insolvent German-based solar manufacturer Q-Cells, according to reports.

Hanwha, which is involved in the retail, financial services and explosives sector (and even owns a baseball team), has been quickly developing a significant place in the solar PV sector through subsidiary Hanwha Solar One. It is now one of the top ten players in the industry and has shown a desire to expand even further.

Q-Cells on the other hand, filed for insolvency in April – a fall from grace for what was the world’s largest solar maker in 2007/08, although hardly a unique circumstance in the sector given the severe pricing pressure.

Details of the potential deal are a little sketchy at this stage, but it has been rumoured for some time, with Hanwha confirming interest back in June. As it stands, the deal could go through as early as this week, with the Korea Herald saying sources had informed them Hanwha had been chosen as the preferred bidder.

“Hanwha is at the final stage of due diligence for acquisition of Q-Cells, but nothing is confirmed for now,” a Hanwha official told the Korea Herald.

It could take control of Q-Cells in September, according to the report.

Bango Wind Farm

The proposed $1 billion Bango wind farm in New South Wales has been cut in half, developer Wind Prospect CWP has advised. Aside from the new $500 million project not being quite as catchy for headline writers, it will also see the number of turbines reduced from 200 to 100.

Wind Prospect CWP's senior development manager, Adrian Maddocks, said discussions with the local community led to the move and he is hopeful that will be the end of alterations to the company’s plans.

"The original project was going to be in the order to 200 turbines and it was actually going to connect into a bigger power line just north of Yass, so the smaller project now connects into a smaller line," he said, according to the ABC. "So, essentially we're looking at a $500 million or $600 million project and that's half the size and so we're expecting it will stay roughly in that shape and hopefully no more contraction."

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles