The ABC has quoted financial analysts who called the news a “classic example” of price fluctuations in the Australian energy market as a direct result of the increased presence of renewable energy in the electricity grid.
Japanese company, Sumitomo moved this week to write off its $250 million stake in the $1.2 billion Bluewaters coal-fired power plant in the south-west of Western Australia. The move was lodged in Sumitomo’s accounts for the month of September, in spite of the fact that the $1.2 billion power plant was written off as worthless due to renewables just ten years after its construction.
In these figures for the month of September, Sumitomo made it clear that the firm “recognised losses on the investment” it made into the $1.2 billion power plant that is now being written off as worthless due to renewables and market conditions.
According to a report from the ABC, “it comes just nine years after Sumitomo, in a joint venture with fellow Japanese firm Kansai, bought Bluewaters for a reported $1.2 billion from the wreckage of fallen coal tycoon Ric Stowe’s failed business empire.”
It’s understood that Kansai has also written off the value of its assets in the $1.2 billion Bluewaters power plant, bringing their equity stakes in the power plant to zero.
The ABC’s Daniel Mercer writes that “earlier this year, a syndicate of Australian and overseas banks including Westpac and ANZ apparently refused to refinance $370 million in debt owed by Bluewaters amid concerns about the facility’s coal supply security and investing in the fossil fuel.”
We’ve reported previously that the ANZ bank has made announcements it will be moving its investment portfolio away from traditional power plants, opting to finance renewable energy projects instead.
That is in addition to the report we covered detailing that more coal-fired power plants were going offline than were opening for the year of 2020, signaling a sizeable shift in the nature of, and flailing investment opportunities that coal represents in global energy markets.
The Australian Institute of Energy Economics and Financial Analysis (IEEFA) has said that the two Japanese firms were left with no other choice but to write off their stakes in the power plant due to increasingly difficult trading conditions and the impact of solar energy on the market.
Simon Nicholas, an energy finance analyst with the IEEFA has said that the moves mark a significant economic shift in the way coal-fired power plants like the Bluewater plant are financed.
“I think this is an absolutely classic example of what we’re likely to see going forward across Australia and around the world,” he said.
“In a developed power market, a relatively new – really, very new – coal-fired power station has been deemed to have effectively no value,” Nicholas said, adding that “it’s a very important example that’s flown under the radar.”
Nicholas suggested that Bluewaters is likely impacted by both a disrupted coal supply, as well as dealing with the impact of renewables like rooftop solar and wind farms in the state of Western Australia.
In the state of Western Australia, it’s not uncommon for the unit price of solar energy being significantly cheaper than being powered by coal-fired power plants. Mr Nicholas continued to explain that “in Western Australia, the penetration of rooftop solar is huge, amongst the highest in the world.”
“In Australia, the cost of utility-scale renewables is often lower than the cost of fuel for coal-fired power plants… so, the long-term future for coal-fired power plants is looking fairly grim and banks are responding to that – they don’t want to finance coal anymore,” he said.
Earlier this year, manufacturing giant General Electric announced it would stop producing parts for coal-fired power plants, with its senior vice president, Russel Stokes saying that “GE will continue to focus on and invest in its core renewable energy and power generation businesses, working to make electricity more affordable, reliable, accessible and sustainable.”