SA Transmission Debacle and Demerger

We’re getting a valuable insight into the wind generation business and taking the conversation over here will remove it from an unrelated post.

An announcement to the NZ Stock Exchange yesterday by Trustpower began:

Trustpower is pleased to advise that the suspension of the electricity market in South Australia has been lifted and the Spot Market has resumed normal operations. The operating constraints that were placed on Trustpower’s wind farms during the suspension have also been lifted.

These events could reveal the true profitability of what seem to be extremely expensive and low-output “wind farms”.

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Richard C (NZ)

Suspension having been lifted we have to wait now for final court order allowing TrustPower (TPW) to delist and New TrustPower (TPX) and Tilt Renewables (TLT) to list. Bringing up some relevant backgound in the meantime: ‘SA Blackout: Three towers, six windfarms and 12 seconds to disaster’ – JoNova Frequency hell To give you some idea of how important frequency is and how fast it falls over, here’s a couple of paragraphs from the AEMO report. At the Heywood interconnector, the extreme frequency limits appear to be 4Hz for a “quarter of a second”: Generator performance standards after 2007 require generating units to remain on line for a Rate of Change of Frequency (RoCoF) of 1 Hz/second for 1 second as a minimum, and up to 4 Hz/second for 0.25 seconds. RoCoF must be maintained within this limit to prevent damage to generating units and effective operation of protection relays and emergency control schemes such as the automatic Under Frequency Load Shedding (UFLS) scheme. The sudden loss of around 850–900 MW of supply to SA due to the tripping of the Heywood Interconnector resulting in a rapid reduction in the power system frequency.7… Read more »

Richard C (NZ)

TPW last close Monday 17th was $7.270. The balance day price was: EPS 0.306 * PE 26.7 = $8.17 From calcs previously: Tuesday 18th: High Bid $7.110, Low Offer $7.230 (Say $7.17 for convenience i.e. $1 difference from above). That’s a $1 per share loss of wealth to TPW shareholders since balance date and before demerger. Total loss to shareholders since balance date: $315,751,900. But 52 weeks ago $6.936 so a 52 week gain of $0.334 or $105,461,135. Market sentiment is more the reason for the sagging price than the demerger I think. Genesis and Contact are similar: Trustpower Limited Ordinary Shares (TPW) Genesis Energy Limited Ordinary Shares (GNE) Contact Energy Limited Ordinary Shares (CEN) S&P/NZX All Energy (G10) The S&P/NZX All Energy comprises members of the S&P/NZX All Index, considered the total market indicator for the New Zealand equity market, classified within the energy sector of the Global Industry Classification System (GICS®). Value 1,297.870 Movement ▼-6.04 Percentage ▼-0.46% S&P/NZX All Energy (G10) 30 day graph New Truspower will get 89% of revenue from retail. Only 9% from generation. Only 2% from generation in Australia. New Trustpower would… Read more »

Richard C (NZ)

Tilt Renewables – financial summary and capital structure

TrustPower – Audited Historical Consolidated Financial Information

Richard C (NZ)

Relative TPX and TLT prices to realize gain or loss from TPW balance date and current price (near enough). Book Value Of Equity Per Share (BVPS): Investment Valuation Ratios: Price/Book Value Ratio – By Investopedia PBVS = Price per share / Book value of equity per share Equity / Shares TPW: 1,888,644,000 / 315,751,900 = 5.98 $/share (current multiple 7.42/5.98 = 1.24 times) TPX: 1,423,443,000 / 157,875,950 = 9.02 $/share TLT: 465,201,000 / 157,875,950 = 2.95 $/share Applying the current multiple to both gives some indication of the respective valuations when trading begins: BPVS TPX: 9.02 * 1.24 = $11.18 TLT: 2.95 * 1.24 = $3.658 $11.18 + $3.658 = $14.84 compared to TPW close $7.42. Chances of these prices seem extremely slim, but not impossible. Chapter 19 Book Value Multiples – New York University Table 19.2, Price to book ratios for integrated oil companies listed in the United States in September 2000 Pennzoil-Quaker State PZL 0.95 Exxon Mobil Corp. XOM 4.22 Price/book value ratios for firms in the trucking industry, Xtra Corporation 2.80 Estimating the PBV ratio for a high growth firm in the two-stage model [Nestle] Nestle… Read more »

Richard C (NZ)

‘Trustpower split frees new entity to chase wind power, independent adviser says’ – August 18, 2016 Trustpower’s plans to carve out its windfarms and renewable development pipeline into Tilt Renewables will give the new entity freedom to chase opportunities and should outweigh the cost of the transaction, according to an independent adviser’s report on the deal. […] Independent adviser Northington Partners says the two businesses are quite distinct with different growth and risk profiles, and that splitting them up would let different boards and management teams “refine strategies, objectives, and business processes to best suit the current circumstances and future opportunities facing each business,” enhance their ability to raise new capital, and give shareholders clearer investment choices. […] “We suggest a useful way to characterise the proposed demerger is that it puts Trustpower in a much better position to exercise the potentially valuable growth options it currently holds in wind generation developments, particularly in Australia,” the report said. “While there remains considerable uncertainty over the number and scale of the projects that will be developed, we believe the potential value creation from exercising these development options is significant and outweighs the costs of… Read more »

Richard C (NZ)

TPW $7.150 High Bid $7.110 Low Offer $7.150

P/E 25.460
EPS $0.281
NTA $5.774

Richard C (NZ)

MEMO From: NZX Client and Data Services | 5:26pm, 20 Oct 2016

Subject: Trustpower Demerger – TPX & TLT Initial trading and nominal reference prices

NZX Market Operations (“NZXO”) advises that, to facilitate the creation of Bay Energy Limited (to be renamed Trustpower Limited) (“TPX”) and Tilt Renewables Limited (“TLT”) as tradeable instruments in NZX’s systems and to enable trading in TPX and TLT from 28 October 2016, NZXO will enter a nominal reference price of $1.00 for those securities, in BaNCS. This reference price will also be visible in NZX’s trading system, the market depth feed and the web data XML price file.

NZXO notes that this reference price is solely related to NZX system requirements and is not indicative of any underlying valuation, or expected trading valuation, of TPX and TLT by any of NZX, TPX or TLT.

Richard C (NZ)

TPW $7.250 High Bid $7.200 Low Offer $7.250 P/E 25.630

Richard C (NZ)

‘Victims of the South Australia Statewide Blackout to Sue Wind Farm Operators’

Eric Worrall / October 22, 2016

“Whatever happens in this case, one thing seems clear. The financial risk of being a wind farm operator just skyrocketed.”

Richard C (NZ)

Last day of TPW trading 27/10. Trading Status: Halted

TPW $7.110, P/E 25.310,

TPX and TLT begin trading tomorrow 28/10. Ignore $1.00 reference price at start of trading.

Richard C (NZ)

Open Letter to the New Zealand Super Fund – 26 October 2016

Dear Mr Orr,

Earlier this year, New Zealanders were shocked to hear that our retirement savings are being invested in cluster bombs and nuclear weapons, things that kill and harm people and our planet. Like armaments, the warming caused by fossil fuels like oil, coal and gas is responsible for causing severe impacts on people’s lives. Through drought, flooding, rising seas and extreme heatwaves, fossil fuels are like cluster bombs for the climate, harming the planet on which we depend on to survive.


350 Aotearoa, Oxfam New Zealand, The New Zealand Public Service Association, Greenpeace New Zealand, World Wildlife Fund NZ, 1222 members of Action Station, Health Sector Workers Network, Unite Union, Coal Action Network Aotearoa, Auckland Diocesan Climate Change Action Group, Anglican Diocese of Wellington

# # #

>”fossil fuels are like cluster bombs for the climate”

Only “cluster bombs” now? Used to be Hiroshima bombs.

Richard C (NZ)

Indicatively, TPX up about $1 on estimate but TLT down about $1 (as expected). Bay Energy Limited Ordinary Shares (TPX) High Bid $4.810 Low Offer $5.500 Tilt Renewables Limited Ordinary Shares (TLT) High Bid $2.000 Low Offer $2.500 # # # No trades in either yet, those are still very wide spreads. My estimates given recent trading in TPW were(from upthread): Price and value for no TPW gain/loss from balance price $8.17 and PBV at current TPW multiple 1.24: Using apportioning from above (4.1/7.42 = 0.553 x 8.17 and 3.32/7.42 = 0.447 x 8.17) TPX $4.51 by PE ($11.18 by PBV) TLT $3.66 by PE ($3.66 by PBV) Price and value for no TPW gain/loss from current price $7.42 (PBV as for $8.17): TPX $4.10 by PE TLT $3.32 by PE Last TPW price at trading halt yesterday was $7.110. Clearly the market sees more value in TPX assets (note “assets”, earnings as normal) now that TLT has been ring-fenced and demerged. But the market sees less value in TLT as a separate entity. This was about what I expected although the TLT $2.000 bid is probably a bit more then… Read more »

Richard C (NZ)

>”Tilt Renewables Limited Ordinary Shares (TLT) High Bid $2.000 Low Offer $2.500″ [Mid $2.250]

To put this in context (from upthread), TLT Equity / Shares: 465,201,000 / 157,875,950 = 2.95 $/share

This is without any market premium/discount applied (e.g. was a premium of 1.24 times for TPW). Obviously the market is DISCOUNTING by about 32% the value of TLT in respect to Equity.

>”Bay Energy Limited Ordinary Shares (TPX) High Bid $4.810 Low Offer $5.500″ [Mid $5.155]

TPX Equity / Shares: 1,423,443,000 / 157,875,950 = 9.02 $/share

The market is also DISCOUNTING by about 43% the the value of TPX in respect to Equity. Previously they were paying a premium of 1.24 times for TPW.

Richard C (NZ)

First trades. TPX $4.920, TLT $2.250

= $7.17 TPW. $0.06 up on Thursday’s close but a $1 loss from balance date, ($315,751,900) total loss.

Richard C (NZ)


Buildings use about 40% of global energy, 25% of global water, 40% of global resources, and they emit approximately 1/3 of GHG emissions.

Richard C (NZ)

Tilt Renewables makes underwhelming arrival on ASX – AFR Oct 28 2016 A new name in the Australian wind power sector, Tilt Renewables, is poised to pursue more aggressively its plans for new wind and solar power ventures after the Trustpower spin-off made a below-the-radar debut on the ASX. ​Shares in dual-listed Tilt, still partly owned by New Zealand’s fourth largest energy retailer Trustpower, were due to begin trading on the ASX at midday but no shares had changed hands by mid-afternoon. In New Zealand the stock began trading at $NZ2.25, but only two exchanges of shares took place within the first few hours. The listing, which was delayed by about two weeks by the South Australian blackouts which disrupted the company’s two South Australian wind farms, makes Tilt the second Australian-based pure renewable energy player on the ASX, after Infigen Energy. When the demerger was conceived earlier this year Infigen shares were soaring, driving expectations by analysts that Tilt could benefit from a re-rating based on the Infigen relative multiple. The parent company has made clear that equity raisings are on the cards for Tilt to help fund development of projects that… Read more »

Richard C (NZ)

>“Tens of billions [of dollars] will be required to be invested in renewables over the next decade to meet Australia’s RET obligations”

SA’s Wind Power Debacle Escalates as Australian Wind Power Subsidies Hit $3 Billion a Year – August 2, 2016


Wind farm subsidies rise, hitting consumers’ power bills – August 23, 2016


Australia’s Federal RET Blown Away by South Australia’s Wind Power Disaster – October 11, 2016


Richard C (NZ)


“At IFN P/E of 109.50, TLT shares would be priced at [$21.46]”

Richard C (NZ)

TLT $2.100 -$0.100 / -4.55%

Going down. List price was $2.250

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