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CWP Renewables Pty Ltd presents as a story of successful entrepreneurship for which its owners have been rewarded with fantastic profits. But that outcome has been accompanied by a huge cost to the community.
The company, established in 2007, has been mainly involved in wind farm developments with giant Swiss holding company Partners Group, which also contributed a chunk of equity capital. Aside from some potential ‘blue sky‘ projects involving solar, wind and batteries, CWP’s main assets were five windfarms with 257 turbines erected between 2016 and 2020 at a cost of $1.72 billion. The turbines were financed by the Commonwealth’s CEFC green energy bank ($233 million), and Partners Group ($250 million). With other funding, borrowings totalled $983 million and equity was $740 million.
The outfit was acquired in December last year for $4.1 billion by Squadron, a private company owned by Andrew ‘Twiggy’ Forrest (above). For CWP’s shareholders this was a great return: $740 in equity became 5.5 times more valuable. While Andrew Forrest is a climate fanatic, he is no idiot. There were rival bidders for CWP and his outlay represented good value to Squadron.
To grasp CWP’s appeal, begin with the main assets – those 257 wind turbines – and their two streams of revenue. The first is the return from the electricity market, almost always forward-contracted in power purchasing agreements. The second is the subsidy that wind farms receive as a result of energy retailers’ obligation to incorporate renewable energy in their total electricity supplies by purchasing Large-scale Generation Certificates (LGCs). This was billed as a temporary measure when introduced in 2002, the rationale being to give renewables a short-term fillip while they evolved to fulfil their anticipated (and ever-receding) destiny of being cheaper than fossil-fuel power.
When CWP was planning its windfarms, between 2015 and 2018, the expected energy price would have been, rule of thumb for the three-year period, about $70 per MWh. The expected price of the LGCs would have been expected to follow a downward trajectory, averaging around $30 per MWh, reflecting the assumption that the “temporary” scheme would be winding down. This combined revenue stream would offer a prospect of decent profits.
Fast forward to December 2022, by which time such price assumptions had been shown as far too conservative. The assault on coal, the predominant source of electricity, is preventing new investment and causing closures, the shuttering of the Liddell power station being the latest. The closures have been exacerbated by downtime in other stations due to stinting on maintenance as a result of the subsidised wind and solar competition driving down their profitability.
The future wholesale price is forever being forecast to fall by politicians and regulators enthralled by their love-affair with renewables. The fact of the matter is that it has zig-zaggedly increased from around $40 per MWh in 2015, prior to the closure of coal-powered stations, to its present level of $177 per MWh — an increase Prime Minister Anthony Albanese ludicrously tried to blame on the war in Ukraine.
Hard-nosed bidders for the CWP assets in December 2022 would likely have seen the wholesale price as remaining at some $150 per MWh well into the future. They would also be further encouraged by the subsidies allocated to transmission, big batteries and pumped hydro by state and federal governments.
With regard to those LGCs, subsidy seekers, who mournfully anticipated a fall in the price, have been happily surprised to see prices holding up. The current price has been given a shot in the arm by the Safeguard Mechanism forcing major outfits to increase the share of renewable energy within their electricity supplies. And there is a strong prospect of a further upward price bump resulting from an increase in general requirements for renewable energy to lift its market share from the current 30 per cent to 82 per cent of supplies by 2030 in line with the Labor government’s pledge.
All in all, Squadron would have assembled its bid on the expectation of increased revenues from these factors. Compared to the $100 per MWh expected ($70 and $30 per MWh respectively from the wholesale and subsidy streams), by December 2022 expectations would have been some $200 per MWh ($150 per MWh from a market distorted by subsidies and $50 from the subsidies themselves).
Hence, despite some political risks and the distant prospect the wind turbines will incur disposal and remediation costs, CWP Renewables’ revenue has doubled with no increase in finance and operating costs. The tragedy of all this is that the benefit to the entrepreneurs is also a cost imposed on the economy due to energy users being forced by regulation to pay around three times the underlying wholesale price for energy.
Yesteryears’ entrepreneurs profited by searching out needs and value-adding. Today’s energy entrepreneurs seek out opportunities created by government regulation, which causes higher prices and advantages particular energy sources. Those profits come at the expense of consumers landed with an inferior product at a much greater price. Put bluntly, this trend cannot co-exist with increased living standards.
Alan Moran, of Regulation Economics, wrote the chapter “Current trends and perspectives in Australia” in Local Energy Markets edited by Tiago Pinto et al and published in 2022 by Elsevier
One might be forgiven for likening the likes of these so called Entrepeneur’s to the people we call oligarchs who came to riches when Boris Yeltsin placed much of the Russian infrastructure on an open market via shares and the people in the know snapped them up. The answer of course lies in stopping the subsidies from the taxpayers pockets and allowing the Mr. Forrests of our country to invest their own money.
Government + Industry = Fascism
Mr Moran knows far more than I about economic theory, but none-the-less, I consider his conclusion “this trend cannot co-exist with increased living standards” not negative enough – I would predict “continuation of this trend will lead to decreased living standards”.
Probably a more accurate statement than my own ultra conservative ;phreseology
And just when you tyhought it couldn’t get any worse…………..
Hydro Tasmania has announced the signing of a term sheet with Bell Bay Powerfuels for the sale of the decommissioned Bell Bay Power Station, following an Expression of Interest process launched by Hydro Tasmania in December 2022.
Launceston, Tasmania Jun 3, 2023 (Issuewire.com) – Hydro Tasmania has announced the signing of a term sheet with Bell Bay Powerfuels for the sale of the decommissioned Bell Bay Power Station, following an Expression of Interest process launched by Hydro Tasmania in December 2022.
The $1.2B Bell Bay Powerfuels Project currently under development by its Australian parent company ABEL Energy, with financial and project support from Iberdrola Australia, involves a green hydrogen and green methanol production facility, to be built at the power station site.
The selection of the site now accelerates project development, with front end engineering and design- FEED – due to start in a few months’ time. Commercial operation is scheduled to commence in 2027.
The project will also require the development of new power generation assets, to provide sufficient renewable power for the proposed 240MW electrolyser unit. This unit will generate the green hydrogen required for the onsite production of green methanol. This safe, clean-burning, net-zero liquid is currently in strong demand as an emerging fuel for new ships on order by some of the world’s largest shipping companies.
At the proposed 300,000 tonnes per annum of output, this is a global-scale green methanol project, the largest of its kind in the Southern Hemisphere. The renewable power assets needed to produce the fuel will be developed with Iberdrola which has
substantial global experience in renewable power generation.
Hydro Tasmania’s Bell Bay Power Station was originally oil-fired when commissioned in 1971. It had its own deep water berth to receive the incoming ocean-going oil tankers. The berth is still in place and will be used by Bell Bay Powerfuels for the export of green methanol. The power station will otherwise be demolished although there is a desire to retain and repurpose some of the other existing structures where possible.
Construction of the project will require about 500 people, with ongoing operations involving about 250+ direct and indirect jobs.
Significant progress has already been made across other project components such as supply of biomass from certified plantations, sustainable water sourcing, engineering capability and green methanol offtake arrangements.
ABEL Energy Pty Ltd | http://www.abelenergy.com.au
Co-founder and Chief Executive Officer of ABEL Energy, Michael van Baarle, said:
” This announcement is the start of a very unique period for Tasmanian renewable
energy. We are on the cusp of being a global leader in green methanol production,
the future fuel of world shipping. It’s a great win for all Tasmanians particularly the
Tamar Valley communities of George Town and Launceston.”
Chief Executive Officer and Chairman of Iberdrola Australia, Ross Rolfe, AO, said:
” Iberdrola Australia’s support for the Bell Bay Powerfuels green methanol project
is part of our broad commitment to helping deliver decarbonisation solutions for
commercial and industrial customers in historically hard-to-abate sectors. In addition
to our partnership with Bell Bay Powerfuels, Iberdrola is providing technical and
commercial support for the project, enabling the development to benefit from our
local market expertise and global capabilities in this emerging technology.”
Its great for one’s profession or occupation to be regulated: a lovely barrier to entry; but oh, to be subsidized! Even better: completely insulated from the discipline of the market and the choice of the purchaser. But the price we pay in this economic deadweight? Parlous.
Twiggy’s an interesting character. Many of my former colleagues greatly disliked him: one told me that I could “do it too if you were ready to sell your soul”. But they were old Fluor hands, and felt targeted by him. In truth the lawsuit was really about clearing the decks to establish FMG. And you have to hand it to him: after Murrin Murrin to come back and establish a successful venture like that is incredible.
I do not blame him at all for profiting from our political masters ineptitude. If some fool stands on a float running down Collins Street and throws hundred dollar notes to the wind, are the people who pick them up thieves?
Pretty much.
Two of his original “investors” in the scramble for red ore were Graham Richardson and Rene Rivkin. While I do dislike that choice of backers (intensely), to lift oneself up by the bootstraps from that, force BHP to lease rail track time through persistent legal warfare and then develop an efficient large scale mining operation is somewhat remarkable.
We do notice today that BHP disagrees with Forrest on the widespread suitability of H2 for fuel. Now there’s a surprise.
“..are the people who pick them up thieves?”
.
If thrown by me after I win the $329m USA Mega lottery tomorrow – No
.
If they know it is the proceeds of a bank robbery – Yes
.
If they know it is money from compulsory taxation being misused:
Thieves – No
Dishonourable -Yes
Dishonest – ?
I think one should always remember one of the first cabs off the rank – none other than Tim Flannery. Remember his geothermal energy scam. As I remember it $90 million dollars of taxpayer money to his firm Geodynamics – so much promised and not a single kilowatt generated. Not a single “Sorry” to the Australian public, but just a quick move to another trough.
https://www.heraldsun.com.au/blogs/andrew-bolt/another-flannery-fail-geothermal-project-scrapped/news-story/331390329e1af9da27ec28a80163b45d
PT: “And you have to hand it to him: after Murrin Murrin to come back and establish a successful venture like that is incredible.”
Agreed. I was at a two-day investment conference in early 2004 at the Fremantle Esplanade. Twiggy first went public with his iron ore strategy. He had the worst slot for this kind of event: just after lunch on day-two. About 250 of Perth’s best and brightest (excluding me) were in the audience, When he finished the place was silent. After Murrin Murrin, most of them presumably had written him off. There were no questions. Thirty-two companies presented over the two days. I ranked them all. He was the only one I gave an A.
Yet folk were sceptical for years. The turning point came, I think, in August 2006. Twiggy spoke at a lunch given by the Perth branch of the American Chamber of Commerce. He had, he said, been able to raise about USD2.5 billion from US investors to fund the first FMG project. This time when he finished there was no more silence, just loud applause. And the rest is…. HIS STORY.
All on the back of his unpaid Murrin Murrin creditors of course.