Dazzling solar generator fails promise

Wants half-billion public bailout

From The Hockey Schtick (h/t Richard Cumming) we learn that the Ivanpah solar thermal plant (the world’s largest), on the edge of the Mojave desert in California, has failed to keep its promise of renewable, reliable, cheap, climate-changing electric power. Which is a shame, but at least it’s their own money they’re playing with.

Only it isn’t. Its owners, none other than giga-giants Google and NRG Energy, want another $539 million of public funds to help them pay off a federal construction loan of $1.6 billion. How’s that for audacity? Apparently it’s possible for the giga-rich to demand public funds under Obama’s determinedly loony policy to burn public money on unproven ‘green’ projects to ‘save’ the planet.

So Ivanpah has failed its early production targets before a year is up, having produced only a quarter (254,263 MWh) of the planned electricity, and it’s applying to burn more fossil fuel which will emit 60% more CO2 to warm the globe.

Why does it need fossil fuel? Well, the plant was designed to include a small amount of gas-fired heating for nights and cloudy days, so the plant could continue to generate electricity. How can it do that? Because the solar rays don’t heat the water directly, they heat a container of liquid salt (sodium chloride), which in turn boils the water. These giant containers of liquid salt stay hot for several hours, but if they cool down, you can reheat them with the gas.

So why does it need so much more fossil fuel? Apparently the weather has been cloudy and nights have been cold, so they say the sun hasn’t been working too well. We could speculate that their boilers are inefficient as well, but who knows?

The Hockey Schtick tells us that over half the electricity it puts out isn’t from solar power at all, but from this inefficient use of fossil fuel. How immensely ironic that is, since it’s the only reason the solar plant exists. We just don’t need it except to save ourselves from CO2, but it’s actually increasing our output of the blasted stuff! Ivanpah has been a huge, taxpayer-subsidised expense, at least $US2.2 billion so far, plus high electricity rates guaranteed by long-term contracts with California utilities (i.e., ratepayers), causing 59% more greenhouse gas emissions and giving 75% less electricity than promised. The blog ends by asking: could Ivanpah be the world’s biggest green energy boondoggle ever?

This poster child for the solar industry also happens to fry up to 28,000 birds a year. Still, according to its web site it has ‘a low environmental impact design.’

Let’s look at that. To start, let’s zoom right in on the Unit 1 solar receiver.

You can see the dazzle that comes from looking directly into the mirrors behind the top of the tower. Pilots report they interfere with vision, and they disable or kill birds, singeing or setting fire to them as they fly through air at temperatures as high as 1000°C. Workers at Ivanpah call them ‘streamers’, from the smoke that marks their last flights. At the base of the tower is a steam turbine power station of about 100MW.

Now we’ll step back to include Units 2 and 3.

When you see the whole installation, you realise it’s huge, with three of these generators. Their total generating capacity is just under 400 MW. Click to expand.

Now what about the overall context?

Now I know what you mean by ‘environmental footprint’. Why do they call it ‘a low environmental impact’? It’s enormous. Click to expand.

In 2013, solar power produced 0.23% of America’s total electricity generation of 4,058 billion KWh. As far as I can ascertain there’ll be a slight improvement in 2014, perhaps to 0.5%, probably much less. Which means the deserts must be covered with these environmental disasters before solar thermal will make the slightest dent in the dependence on coal, gas and nuclear generation.

The Ivanpah installation apparently doubled America’s solar thermal electricity generation, but that’s because they’re starting from nothing. It’s still a pitiful amount (0.23%) compared with the gargantuan demand, and no matter how the activists might wish the demand to go away, it won’t go away. It must be satisfied somehow because our personal mobility, transportation of all kinds, medical services, modern materials and most of the rest of our technology are such highly valuable components of our liberty we will never simply give them up.

For scale, here, courtesy of Google Maps, is the Ivanpah development as at June last year, from 50km up, with a handy 10km yellow line. You might like to amuse yourself by working out how many of these things the US deserts might accommodate. There’s a great deal of demand plants like this must strive to meet, but there’s still plenty of desert—doesn’t that fill you with hope for the future?

These monstrosities could end up everywhere because, though they spoil the wilderness for everyone, they make money for selfish people. Click to expand.

 

24 Thoughts on “Dazzling solar generator fails promise

  1. The wonder is why didn’t they just build one and see if it worked or not? Why build all three at once? They probably couldn’t have gotten the delivery contracts with just one, but betting the farm on one go just seems crazy with new tech.

    And isn’t there a drought in California? Wonder what the clouds would’ve been like in a “normal” rainfall year?

  2. Richard C (NZ) on November 13, 2014 at 9:36 am said:

    >”….there’s still plenty of desert”

    And there’s still plenty of birds. And the Fed still has plenty of money too:

    Today’s Federal Debt is about $18,001,804,669,000 http://www.usgovernmentdebt.us/

    So at $1.6b a loan and $539m a bailout that’s not going to be a drag on the Fed’s kitty is it?

    Oh wait, I think I’ve got this wrong…….

  3. Richard C (NZ) on November 13, 2014 at 10:47 am said:

    >”could Ivanpah be the world’s biggest green energy boondoggle ever?”

    Not yet but top contender, There will be other contenders given a few years e.g. Ivanpah $US2.2b vs Baltic 1 Offshore Wind Farm €3bn http://www.power-technology.com/projects/baltic-farm/

    Not green energy but same vein, Jo Nova thinks Australian desal takes the prize for govt green-waste:

    The scale of government waste is spectacular, even on a global scale. Desalination in Victoria, Australia, might be the worst example, per capita, of climate waste anywhere in the world. I challenge foreign readers to outdo it. With all the wisdom of the best Soviet-style governance, giant desalination plants on the east coast of Australia were built because of prophecies of drought. Experts said the rain wouldn’t return and the dams wouldn’t fill. Billions of dollars later, the plants were barely finished when the rain returned and the dams filled. Most of Australia’s desal plants were mothballed. The Labor Party in Victoria signed a $22.5 billion contract over 28 years for water that could be delivered almost entirely during the “wet” 30 year part of the Pacific Decadal Oscillation when it isn’t really needed. The plant also cost $3.5 billion to build, is plagued by leaks, and so far has provided zero litres of emergency water.
    http://joannenova.com.au/2014/11/desal-no-water-provided-but-victorian-families-pay-450pa-for-bikies-and-drunks/

    Can’t top that in NZ, the Motunui Synthetic Fuels Plant might be an example but there was sense at the time and ongoing mitigation – but nothing “green” about it:

    Think Big
    “The construction of the Mobil gasoline plant at Motunui, the complementary expansion of the oil refinery at Whangarei and the building of a stand-alone plant to produce methanol for export formed the core of the National Government’s ‘Think Big’ policy. Together they had a capital cost in excess of three billion dollars.”
    http://www.techhistory.co.nz/ThinkBig/Petrochemical%20Decisions.htm

    Govt share of US$1.75b Synfuel loan 75% (US$1.3b). Govt paid Fletcher Challenge $112m to take over Synfuel and paid off $1193m of Synfuel debt. Total cost to govt about $1.3b.

    Investment Risk: A Lesson From History [Synfuel]
    http://www.kensingtonswan.com/KSPublicWeb/media/Documents/Energy-NZ-%28March-April-2013%29.pdf

    Fletcher Challenge sold to Methanex:

    Methanex in New Zealand
    We are also an important contributor to the local and national economy. In 2013, an economic report prepared by Business and Economic Research Limited forecast that Methanex contributes NZD440 million to Taranaki’s GDP and NZD650 million to New Zealand’s GDP annually at full three-plant production.
    https://www.methanex.com/location/new-zealand/about-methanex-new-zealand

    Of course the modern synfuel approach is “green”:

    The Greening of Synfuels
    An old, dirty technology to make transportation fuels from coal could
    fight global warming, say proponents. The trick is using more biomass
    and burying the carbon dioxide that’s generated
    http://www.atmos.washington.edu/2009Q1/111/Readings/Kintisch2008_Green_Synfuels.pdf

    We could do that now.

  4. Maybe cloudiness in the Mojave Desert is due to climate change 😉
    Pales into insignificance against the US$88 billion p.a. in fossil fuel subsidies: http://www.odi.org/g20-fossil-fuel-subsidies

  5. Yeah, you could be right. So you reckon there’s a sizeable negative feedback? 🙂

    “US$88 billion p.a. in fossil fuel subsidies”
    No, you’re misleading people, Simon, keep things tidy, mate—the $US88 billion is global. Look up the US subsidies to confirm they spend only $US5.1 billion. So the Ivanpah loan is actually a whopping 31% of the national subsidies, which is very significant. Do you have anything else against my comments?

  6. Richard C (NZ) on November 13, 2014 at 7:26 pm said:

    ‘Contrary To Reports, Rich Countries Do Not Subsidise Fossil Fuels By $88 Billion A Year’

    Tim Worstall, 11/11/2014

    We’ve the latest report out trying to convince us that fossil fuel companies, those exploring for coal, oil and natural gas, are subsidised by some vast amount by the rich countries. More specifically that the G-20 countries cough up $88 billion a year to aid in the exploration for such fuels. I’m afraid that it’s not true and they reach this number by doing some quite delightful statistical dodging.

    We should first note though that there are very substantial subsidies paid to fossil fuels. I’ve a note on that here. $500 billion a year is the usual rough estimate and we’ll not go far wrong with that. However, this is direct subsidies and almost all of it is taking place either in poor countries or in fossil fuel producers. The subsidy of gas to make sure that Siberians don’t freeze in the winter, below market prices for petrol in places like Venezuela. The biggest subsidiser used to be Iran but thankfully they’re gradually changing their system.

    […]

    The report itself is here. Have a look at it yourselves, by all means, but here’s the three things they’ve added up to get to that $88 billion figure:

    A fossil fuel subsidy is any government action
    that lowers the cost of production, lowers the cost of
    consumption, or raises the price received by producers of
    fossil fuels.7 Types of fossil fuel subsidies include financial
    contributions or other support from the government, such
    as grants and direct payments, tax concessions, non-market
    investments made as a result of government ownership of
    fossil fuel companies, in-kind support (including specific
    infrastructure), credit support (loans and loan guarantees),
    insurance and indemnification, market price support,
    procurement, and responsibility for decommissioning
    (Koplow and Charles, 2010; Steenblik, 2008). This report
    divides ‘exploration subsidies’ into three categories:
    •• ‘national subsidies’, such as tax breaks to companies
    and direct spending by government agencies
    •• ‘investment by SOEs and
    •• ‘public financing’ including support from domestic,
    bilateral and multilateral international (e.g. loans,
    equity, and guarantees)

    To take that second one first, SOEs are state owned enterprises. So when Rosneft spends money on drilling a new well, given that Rosneft is largely state owned (and most certainly closely state connected) then this is a government subsidy to fossil fuel exploration. No, this isn’t normally what we mean by a subsidy and shouldn’t be counted as one. Just that one classification error accounts for up to half of their $88 billion. Just to repeat the error: claiming that investment by a state owned company on purely commercial terms is a subsidy simply isn’t true. If Statoil drills a new well, upon which it makes the usual profits and finances it in the normal manner, this is not a state subsidy. Yet this report is trying to claim that it is.

    Continues for 2 pages >>>>>>

    http://www.forbes.com/sites/timworstall/2014/11/11/contrary-to-reports-rich-countries-do-not-subsidise-fossil-fuels-by-88-billion-a-year/

  7. Richard C (NZ) on November 13, 2014 at 7:54 pm said:

    More from Worstall

    And then there’s the really big problem with what they’re doing here. They’re saying that not paying a particular tax is a subsidy. Let’s just take that as being so, for the sake of argument. OK, so, are there taxes which fossil fuel companies do pay but which renewables do not? This is something I considered here:

    “Something of a pity for their source document is this from the OECD, where the necessary calculations are laid out for them. You need just the four paras at the bottom of page 2. Yes, there is that preferential VAT rate for domestic energy. So we’ll give them that one. But the other paras tell us that there is Petroleum Revenue Tax, some horrible Brownian complexity over the taxation of the extraction companies, fuel duty and excise taxes on petrol and derv plus VAT, and then the Climate Change Levy. None of these taxes applies to renewables: thus renewables have a preferential tax treatment to fossil fuels and are subsidised because, recall, their whole case rests on the idea that a preferential tax rate is a subsidy.

    It’s a fairly hefty subsidy, too. PRT raised £11,250 million last year. Excise taxes on oil products plus VAT were £29 billion a couple of years ago. CCL was £666 million which seems like a fun number. There’s also something called the gas levy out there, but even I can’t be bothered to track that down. I make that £41 billion in taxation on fossil fuels – taxation which renewables do not have to pay in any manner whatsoever.”

    If preferential tax treatment is a subsidy, then renewables are subsidised by £41 billion by that tax preference. If tax preference is not a subsidy, then their original point is still incorrect. This is one of those “either or” moments: you cannot claim that tax preference is a subsidy then claim it isn’t.

    And that’s what brings us back to the $4.5 billion that the UK government allegedly offered as tax breaks in the North Sea over the past few years, as mentioned up near the top. If we do accept that such a tax break is a subsidy, the non-payment of a tax is a subsidy, then the UK government is subsidising renewables by £40 billion a year (or $65 billion or so). That is, one, and not the largest, government is subsidising renewables by almost as much as the entire rich world is supposedly subsidising fossil fuels. And once we take out the activities of state owned enterprises from that $88 billion figure then the UK government alone is providing more subsidies to renewables than the entire rich world is to fossil fuels.

    # # #

    The UK fossil fuel sector must be very proud to be supporting renewables so generously;, up to £40 billion a year (or $65 billion or so) via the UK government.

    Beyond the pale, and a far from insignificant leg-up for a lavished, but otherwise limping, sector.

  8. These so called subsidies are usually the form of tax breaks that other companies get, and in the UK oil companies pay an extra tax, so to call these tax breaks “subsidies” is stretching the meaning of the term “subsidy”

    It gets a bit boring repeating this.

  9. Maybe they can make some money by leasing the place as a movie set for more films like Transcendence.

    A more interesting question is why ‘climate’ web sites like this one, Joanne Nova, and Watts Up With That spend so much time criticising renewables. The reason is that these sites are not about climate at all, but solely exist as lobbyists for the fossil fuel industry.

  10. I’m unfamiliar with the movie Transcendence.

    You answered your own question, Simon, but I must contradict you. Your thinking is just a fraction shallow, I’m afraid. Go a little further. The reason we’re concerned with the expensive ‘green’ projects subsidised with our own money is because they are predicated solely on the basis that global warming is real and is caused by us. Which it isn’t and isn’t. See? Aware of the facts, we disagree and hence object to policies arising from the incorrect conclusion.

    So let me ask you a question. Why do you propose that this site exists solely as a “lobbyist for the fossil fuel industry?”

  11. It is because “renewables” are useless, not because anyone is a lobbyist for the fossil fuel industry

    I am currently in Scotland, and the place is blighted with wind turbines. Everyone I speak to hates them
    All of them. I haven’t met a single person who thinks wind energy is a good idea.

  12. Andy,

    “I haven’t met a single person who thinks wind energy is a good idea.”

    The democratic decision-making channels are usurped by activists. It’s almost the same situation here. I think what saves us somewhat is the native Kiwi practicality, so the activists can’t go too far. Might be wrong.

  13. Lobbyist is the wrong word, apologists is better.
    I don’t actually think that this power station makes that much sense either, too far away from major power users. Small scale solar has been very successful though. I suspect your article doesn’t tell the whole story, electricity is very cheap in many states at the moment because of fracking, but that is only temporary. The lowest cost producers are fossil fuel power stations, unlike here where they are the highest. High cost producers do not make money during periods of low power prices.
    WIth respect Andy, I suspect people you talk to are atypical of the general population. The locals I talk to at the Post Office (actually a cafe) are very proud of the Te Uku wind farm, it has put their place on the map. People stop at the lookout and take photos of the turbines rotating gracefully in the breeze, generating renewable energy for all 😉

  14. Bulaman on November 14, 2014 at 2:16 pm said:

    I flew over this in August (Phoenix to Reno). It is most impressive from the “I bet that cost a lot to put that way out here” ! Reflection was impressive even at 35000 feet.

  15. Richard C (NZ) on November 14, 2014 at 2:25 pm said:

    >”the turbines rotating gracefully in the breeze”

    Or as Meridian puts it:

    Normal Frequency Asset Owner Performance Obligations

    Wind plant impacts
    Of Meridian’s existing wind farms, only West Wind and Te Uku have governors. Turbines at our Te Apiti and White Hill wind farms do not have governors and therefore are unable to provide frequency support.
    Due to the nature of New Zealand’s wind resource, and the location of our turbines, the pitching systems in our generators are more active than is the case in most other countries. In effect, pitching controls currently operate at the limit of their designs. Enforcing tight governor deadbands at West Wind and Te Uku will result in increased pitching activity. This activity will be well beyond the limitations of the equipment.

    Operating Meridian’s wind turbines in this manner will trigger maintenance activities not normally required within the life of a wind farm. This would be broadly equivalent to a half life refurbishment on a hydro or thermal plant. It would entail a major change to Meridian’s current maintenance practices. Meridian expects the costs of this additional refurbishment at our existing sites with governor function could be around $30 million.

    Further, tight governor deadbands are expected to reduce generation from Meridian’s wind farms by forcing turbines to operate away from maximising the wind resource. Meridian calculates annual lost energy as a result of a deadband limit of ±0.025Hz could be up to 13 GWh, or roughly 2% of production at West Wind and Te Uku.

    Meridian considers these impacts could be sufficient to discourage future wind farm developers from choosing to install governors at their wind farms. In a worst case situation, such a requirement may discourage investment in wind generation. These outcomes would clearly be counter to the Authority’s objectives. This potential dynamic efficiency impact should be account for in the Authority’s cost-benefit analysis.

    [Search “Question Number – Electricity Authority” or” te uku wind farm performance”]

  16. Richard C (NZ) on November 14, 2014 at 2:25 pm said:

    ‘Wind farm gets blame’ 27/01/201

    A Raglan diesel technician blames the Te Uku wind farm for the sudden loss of mobile phone coverage at his nearby workshop.

    For the previous three years Desmond Downs has been able to leave his phone by the kitchen window at his firm’s premises in Matakotea Rd, Te Uku, just off State Highway 23.

    But since construction of 28 massive towers at the wind farm began in November, network availability – which had previously been marginal – has completely disappeared.

    “We could always leave our phone in the window of the kitchen and have one bar of coverage,” Mr Downs said.

    “After the wind farm went up our phone batteries on two identical phones started going flat much sooner. It was the phones `searching for network’ so often.

    “I am not someone who kicks up a stink about progress, and Telecom don’t guarantee coverage here anyway. But it is only since the wind farm went up that this has happened. I can’t think of anything else.”

    It was a condition of resource consent for the Te Uku wind farm that if, within six months of it becoming fully operational, there were adverse effects on communications remedial action would have to be taken.

    Raglan Community Board chairman Rodger Gallagher, a former Telecom engineer, said wind farm interference with mobile phone coverage was a known problem.

    But in this case he suspected it was not electromagnetic interference, but simply that the massive steel towers were blocking the signal.

    “An Australian study found that this does happen, but isn’t usually a problem as the mobile phones switch to the next cell site. In the Te Uku case there is no `next’ cell site to switch to.”

    http://www.stuff.co.nz/waikato-times/news/4588748/Wind-farm-gets-blame

  17. Richard C (NZ) on November 14, 2014 at 3:34 pm said:

    Meridian Energy 2014 Annual Report

    http://www.meridianenergy.co.nz/assets/PDF/Company/Investors/Reports-and-presentations/Annual-reports/2014/Annual-Report-2014.pdf

    Page 87,

    EKF Facility4 DRAWN DEBT: 2014 $120.0M

    4 EKF facility is an unsecured 15 year amortising term loan, provided by the official export credit agency of Denmark, for the construction of Te Uku Wind Farm.

    Page 57,

    Finance Costs ($m) GROUP 2014 – 2013 10.5 PARENT 2014 36.7 2013 (27.5)

    Now Simon, does Te Uku pay for itself and how do you know?

    In other words, Meridian has the following earning assets incurring $1,145.7m debt of which $120m is Te Uku:

    Retail: 276,708 ICPs
    Hydro: 2,338 MW, 11,903 GWh
    Wind: 617 MW, 1,529 GWh [Te Uku 650 GWh]

    Are earnings from each asset applied to the corresponding asset debt e.g. Te Uku earnings to Te Uku debt?

    We don’t know from the report but I very much doubt it.

    Is Te Uku economic?

    Only Meridian could know, and they may not even know, but they’re not telling – that’s top secret.

    The economics of these corporate projects are on the basis of assumptions. If the economics don’t work out as planned, a corporate will never admit it unless under duress – the project is a sunk cost so no-one will talk about it, least of all to the public and shareholders. Their PR will spin the project to the moon even though the project may be a loser in reality.

    Sure Te Uku will earn revenue and produce (unlike AU desal), but we’ll never know if it was ever economic, or not, unless someone spills the beans down the track. Given Meridian’s response to the Asset Owner Performance Obligations upthread, I’m inclined to think Te Uku is probably on the knife-edge of favourable assumptions and very little alteration to assumption e.g. operation costs in the example, will plunge the project into the red.

    That’s if the project isn’t already in the red.

  18. RC, Nice work, as always.

    Simon, you’re funny!
    Oh, but ‘apologists’: no, I simply see the tremendous utility they provide and appreciate them for it. I don’t see any reason at all to apologise for them. Nor do you vilify them while you’re driving to work or wherever you drive. Maybe the Post Office/cafe.

  19. Richard C (NZ) on November 14, 2014 at 4:01 pm said:

    >”The lowest cost producers are fossil fuel power stations, unlike here where they are the highest.”

    Heh. Do you really know what you are talking about Simon?

    Go to this thread header:
    http://www.climateconversation.org.nz/open-threads/climate/economics/#comment-111311

    Snippets:

    0$ carbon charge ranking as MW increase (rough guessing from stupid colour code):-

    1 CCGT
    2 Geothermal
    3 Either – Hydro Peaking or Minor Coal or IGCC/CCS or Lignite
    4 CCGT/CCS

    5000 MW
    5 Major Coal
    6 Minor Wind, Geothermal, Hydro ROR and one of the 3rd rank

    10,000 MW
    7 Major Wind
    8 Minor Lignite, IGCC/CCS, Coal Dry Years
    9 Either – Hydro Peaking, Minor Coal, IGCC/CCS, Lignite
    10 Fast Start Gas Fired Peaker
    11 Minor Wind
    12 Major Lignite
    13 Diesel Peaker
    14 Minor one of the 3rd rank
    15 Major Hydro Pumped Storage

    In the “Low” ($0/t) scenario, an 80 MW coal stn gets built in 2023 and a 560 MW coal stn gets built in 2028.

    In the “Ref” ($25/t) scenario, only an 80 MW coal stn gets built in 2021.

    In the “High” ($100/t) scenario, only an 80 MW coal stn gets built in 2020.

    In the “Low” (0$/t) scenario, no new wind plant gets built until 2023.

    In the “Ref” ($25/t) scenario, 284 MW of wind plant gets built before 2023.

    In the “High” ($100/t) scenario, 938 MW of wind plant gets built before 2023.

  20. The locals I talk to are atypical.
    Possibly, but all of my friends, of varying political stripes, may be atypical, I couldn’t say

    I can’t imagine why anyone would be proud of a wind farm. It represents the compete antithesis of human progress and sustainability

    As James Lovelock described them, “Monuments to a Failed Civilisation”

  21. Richard C (NZ) on November 14, 2014 at 8:07 pm said:

    >”I’m inclined to think Te Uku is probably on the knife-edge of favourable assumptions and very little alteration to assumption e.g. operation costs in the example, will plunge the project into the red.”

    Yup:

    ‘The future of power or a large white elephant?’ 06/03/2008

    Deloittes partner Paul Callow evaluated Te Uku’s commercial viability and concluded that while the economics were “marginal”, proceeding with the project was justified.

    http://www.stuff.co.nz/waikato-times/life-style/302844/The-future-of-power-or-a-large-white-elephant

    Viability of Te Uku Wind Farm Project – Meug

    1. MEUG has reviewed the documentation available on the WEL website related to the Resource
    Consent Hearing Decision for the Te Uku Wind Farm Project.

    2. Aspects of the economics of the wind farm project were disclosed in the Deloitte Corporate
    Finance’s1 statement of evidence for WEL Networks in relation to those hearings. Deloitte
    calculated a positive project base case NPV of +$4.5m. The capital cost of the wind farm is
    approximately $200m including HV lines. Deloitte also tested the sensitivity of the project viability
    and concluded2:

    “In summary, the viability of the project is heavily dependent upon retaining its existing
    configuration. Removal of any single turbine seriously compromises the viability of the
    project and, in the case of one of the high yielding turbines, would make it difficult for WEL
    to justify pursuing the project. Removal of any two turbines renders the project unviable
    based on current investment analysis parameters.”

    3. The Deloitte statement of evidence explains the method used to assess the project viability was a
    standard DCF of the Free Cash Flow to the Firm (FCFF). However the described method of
    arriving at FCFF appears to be incorrect as the interest tax shield (ie tax deducted from interest
    expense) has been omitted.3 The interest tax shield should have been deducted in calculating
    FCFF.

    4. The valuation consequence of the apparent overstatement of FCFF is likely to make the project
    substantially NPV negative depending on the amount of debt assumed.

    5. As Meridian Energy is an alliance partner in this project it may have relied on the WEL/Deloitte
    financial modelling alluded to in the statement of evidence.

    [Search – Viability of Te Uku Wind Farm Project – Meug]

    Working in alliance with WEL Networks Ltd

    Meridian built Te Uku in alliance with the local electricity lines company WEL Networks Ltd, which is owned by a community trust. WEL Networks constructed the 25 kilometre, 33kV transmission line that carries the power from the wind farm to the network and the national energy grid. Te Uku is the first wind generation project of its kind undertaken jointly by an electricity generator and retailer, and a lines company.

    http://www.meridianenergy.co.nz/about-us/generating-energy/wind/te-uku/

    # # #

    WEL tolls Meridian for transmission across WEL’s 33kV line, a relatively low cost project to build ($2.5M):

    http://www.ugllimited.com/helping-to-supply-clean-energy

    Easy money for WEL, not so much for Meridian.

  22. Richard C (NZ) on November 14, 2014 at 8:13 pm said:

    Yes Andy, Simon’s “turbines rotating gracefully in the breeze” may be the romantic assessment but not everyone’s a romantic.

  23. Actually not so much “gently rotating in the breeze” as spinning furiously in the blustery Scottish weather.

    I find it somewhat disconcerting that the landscape is constantly moving. If there are many turbines, you can’t fix your eye anywhere and feel at ease.

    This is maybe only a problem for the “NIMBYs” that have to live with them. The Eco warriors who drive past in their Subarus may nod approvingly

  24. Richard C (NZ) on November 14, 2014 at 9:33 pm said:

    ‘Australia’s wind turbines may stop spinning as banks foreclose’

    By Giles Parkinson on 1 September 2014

    Australian analysts have warned that some of the country’s wind farms could be forced to close down under proposals made by the Abbott government’s RET Review panel.

    Insiders are aghast at the assumptions made by the panel about the possibility of closing the scheme to new entrants and providing “grandfathering” arrangements for existing assets.

    They say the proposals – and the assumption that LGCs, the certificates that are the currency of the scheme – will hold value are flawed, and the panel has not considered the basic refinancing risks of all projects under any scenario.

    “I’m amazed at how flawed this document is,” said one close observer. “It is internally inconsistent, it is intellectually flawed … and it doesn’t even try to cover up its bias. It is 160 pages of self-serving logic.”

    Another noted that almost every wind farm in the country will be up for refinancing for next 3 years. “They will be in major financial distress, and they are all at risk of falling over.”

    While wind farms in Australia can have long term power purchase agreements out to 2030, the financing arrangements are much shorter, usually around 5 years.

    This means that most, if not all, wind farms, will be up for refinancing in the next few years. When that happens, the major banks will review the state of the market, and are either likely to raise the price of debt, or do an “equity sweep” – calling on project owners to invest more cash.

    None are likely to do so.

    And in some cases – because the value of the LGCs will be effectively zero – as Bloomberg New Energy Finance has pointed out – and the price of wholesale electricity has fallen due to the removal of the carbon price and over-capacity brought about by the construction of thousands of megawatts of gas-fired generation – many wind farms will struggle to make debt obligations under current terms.

    In its report, BNEF warned that a “whole host of Australian and foreign companies and lenders could be exposed to asset impairments, and almost all will suffer significant write-downs in the mark-to-market value of their investments.”

    This dire situation was confirmed last week by Infigen Energy, which warned of potential bankruptcies last week (an extraordinary enough statement for a listed company). Infigen Energy head Miles George – who doubles as the chair of the Clean Energy Council – warned that many other companies are in a similar situation.

    Those wind farms on merchant contracts are most at risk, but even those with PPAs have clauses which allow bankers to review the financing arrangements.

    Analysts suggest that Australian banks will be mortified when they understand the full implications of the review panel’s recommendations.

    “Every time there is a refinancing, banks redo the base case model for the project. As the situation gets worse – with a lower LGC price – they will have to squeeze all of their parameters to make sure they get repaid,” one said.

    “When they pull all those levers – a shorter amortisation period, a higher debt-equity ratio, then the equity holders are going to have to tip in additional capital to keep the projects going. The project owners are not in position to do that.

    “And if the equity holders start falling over, banks might be left with wind farms to run and operate. But there will be no real market left, and no real market value in those projects. It may be that they have to turn them (the wind turbines) off.”

    Even the other scenario recommended by the RET Review panel – that of downgrading the target from its current level of 41,000GWh to a “real” 20 per cent target of around 25,000GWh with targets set annually, would not be practical.

    Analysts warn that there would unlikely be any new entrants because of the price uncertainty with rolling targets and – as a result – the higher cost of capital. It is highly unlikely that any Australian bank would provide debt finance in these circumstances.

    All of Australia’s big four banks are at risk, but particularly NAB and ANZ, who have project financed most wind farms in Australia. [See Figure 2]

    http://reneweconomy.com.au/2014/australias-wind-turbines-may-stop-spinning-as-banks-foreclose-81654

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