Australia’s largest listed renewable energy company, Infigen Energy, is battling to retain investor confidence.
Local revenues are suffering from low prices for electricity and renewable energy certificates, and offshore sales are eroded by the strong currency and the need to repay debts and production tax credits given as a form of subsidy to wind farm owners in the US.
The former satellite of the failed merchant bank Babcock & Brown reported an interim loss of $34.4 million on Friday and downgraded its revenue guidance. Infigen shares have since dived 26 per cent, closing down 1.5¢ yesterday to a new low of 34¢.
Infigen, which operates wind farms in the United States, Germany and Australia, including the Capital farm near Canberra, has stated net asset backing of 44¢ a share but in a scathing note issued after the result, Credit Suisse analysts gave the units an implied value of just 20¢ each.
For the first time Infigen’s earnings presentation included detailed coverage of the production tax credits issue, which has reduced cash flow and weighed on its share price.
So-called US ”tax equity” appears as a $709 million liability on Infigen’s balance sheet which, on top of debts of $1.3 billion, appears stretched given net assets of $684 million.
UBS analysts noted operating cash flow in the December half was zero, meaning no debt could be repaid. Investors consider the tax credits a form of debt – a call on the revenue stream from US wind farms, ranking ahead of unit holders.
Andy Gracey, a portfolio manager for Australian Ethical Investments, which sold out of Infigen last year, said the effect was a ”cash sweep” in the US that spooked investors, who were ”not seeing anything for themselves”.
Mr Gracey also said Infigen faced higher maintenance costs than expected as its wind turbines came off warranty.
UBS noted Infigen’s wind farms now had operating costs as high as $20 per megawatt hour – higher than coal, without any fuel cost.
Infigen’s chief executive, Miles George, said this week the production tax credits was not a new issue, but he told BusinessDay the outlook was gloomy.
”There isn’t the prospect for growth … in the current market environment. With electricity prices low and REC prices under $30, there is not a signal for investment in renewables in this country.”
He rejected suggestions from Credit Suisse analysts that Infigen had changed its accounting treatment of unsold renewable energy certificates to shore up its banking covenants.
”If in fact we’d stayed with our old policy … we still would have met the [six-monthly] covenant but would have been in a slightly better position.”
However, Mr George is believed to have told investors at a briefing yesterday that Infigen’s loan covenants could be tested under certain negative electricity price scenarios.
Infigen is hoping to diversify into solar energy and is one of four shortlisted applicants in the photovoltaic stream of the federal government’s Solar Flagships program, in consortium with Suntech, a Chinese firm.