Te Rere Hau sale among options in NZ Windfarms strategic review

Wednesday 26th September 2018

NZ Windfarms says it will look at any strategic options, including sale of its Te Rere Hau project, in order to deliver the best value to its shareholders.

The firm, which has cut annual operating costs by about $2 million, developed a new turbine operating regime and adopted a hedging strategy, can expect to be consistently and moderately profitable, chairman Stuart Bauld told shareholders today.

The company has good assets, a good location and now gets on with its neighbours, but is never going to be a major player in the industry, he said, while options the company has been considering to improve the stability of its earnings, including a partnership with a retailer, or investment in back-up generation, are all risky and expensive.

Without a “significant capital infusion” the company is unlikely to fully use its existing assets, he said. Given existing shareholders are unlikely to fund that, the company has begun a strategic review of its operations and intends to appoint a financial adviser to review the firm’s capital structure and look at wider strategic options, Bauld said.

“There is nothing that is off the table but you’ve got to be realistic,” he told BusinessDesk after the firm’s annual meeting in Palmerston North today. “Some of those may be more achievable than others.”

The firm’s shares were unchanged today at 12.3 cents, giving it a market value of $35.4 million.

At that price the 48 MW Te Rere Hau project - the firm's sole asset - could be an attractive addition to an existing generator, particularly given consents the company has for expansion.

But the 97 two-bladed 500 kilowatt Windflow turbines are the only ones of their kind operating in New Zealand and the industry is increasingly looking to larger, lower-cost turbines for the next major generation investment, expected after 2021.

Te Rere Hau lies south-west of Tilt’s Tararua windfarm and Meridian Energy’s Te Apiti project. To the south lies the site for Mercury NZ’s consented Turitea project.

NZ Windfarms’ chief executive John Worth said the Tararua range is recognised as having the country’s best wind resource. With 2021 approaching, an operating wind farm with scope for additional development should be attractive, he said.

Other firms, including King Country Energy, have previously looked at NZ Windfarms. A perceived obstacle previously was former major shareholder Vector. Vector sold its 22 percent stake in February.

During the past two years, NZ Windfarms has reduced its staff, settled consent disputes with neighbours, bought the project’s lines and transformers from Powerco and changed its operation to avoid running turbines at times of low power prices or in damaging, turbulent wind conditions.

June year earnings before interest, tax, depreciation and amortisation jumped to $3.95 million from $280,000 a year earlier.

Worth said the company has spent the past 18 months addressing its structural issues. But he said being a merchant wind generator in the New Zealand market remains tough.

Independent power retailers are also finding it tough, but the company will continue to look at the potential for retail partnerships, he said.

Acquiring back-up generation – through contract or purchase - also remains an option but assets tend to be “highly prized and highly priced”. That tends to limit the potential savings available, Worth said.

(BusinessDesk)

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