Australian windfarm investment dents Meridian outlook

Thursday 12th August 2010

Meridian Energy expects to report a reduced return on investment in the year ahead as it prepares to tip around A$500 million into the 420 megawatt Macarthur wind farm in southwest Victoria, in a joint venture signed today with Australian electricity giant AGL.

Macarthur will be the southern hemisphere's largest wind farm and has been in planning for several years prior to today's green-lighting.

Meridian's largest New Zealand development at present is the 142MW West Wind installation behind Wellington, although its proposed Project Hayes development in Otago contemplates installed capacity of 630MW.

Meridian will fund its 50% share of the A$1 billion investment from a combination of equity and project finance, and the project follows Meridian's purchase earlier this year of a 70MW wind farm at Mt Millar in South Australia.

The scheme's viability is underpinned by federal government requirements in Australia that retailers obtain a fixed proportion of their overall energy sales from renewables, said Meridian's chief executive, Tim Lusk. AGL is already a major renewables generator in Australia.

The turbine supplier for the project will be Vestas, whose turbines are in use at Meridian's Te Apiti wind farm.

In its latest Statement of Corporate Intent, tabled in Parliament earlier this week, Meridian warned that the Macarthur development would temporarily halt the company's growth in return on equity, which it expects will fall by 5.4% in 2010/11 to give an "economic return excluding revaluations" of $127.2 million.

Return on average equity is forecast to fall from 5.1% to 3.9% between the current year and 2011, rising to 5.8% by 2013. Despite new capital commitments, debt to equity ratios remain conservative at a projected 27.9% by 2013.

The SCI gives further insight into Meridian's concerns about electricity reforms which require it to sell its Tekapo A and B hydro power stations to Genesis Energy.

Meridian describes its strategy as "renewables-led", a subtle switch from the "renewables-only" branding of the past, although it says the reforms do not fundamentally change that approach.

"However, the reform package has clear implications for the execution of Meridian's strategy, particularly its retail strategy, and its ability to fund its growth strategy.

"The timing and value impact of the above changes and Meridian's response in the wholesale and retail electricity markets are too uncertain at this time to provide an indication of the impact on financial performance or company valuation."

Genesis has already indicated a likely revision to its SCI, once the Tekapo transaction is completed.

Businesswire.co.nz

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