The owners of Australia’s newest coal-fired power station have written down the value of the asset to zero, wiping out a $1.2 billion investment in the face of an onslaught of renewable energy.
In what a financial market analyst said was a “classic example” of changes predicted in the energy industry, Japanese conglomerate Sumitomo has written off its $250 million equity stake in the Bluewaters power plant in Western Australia’s south-west.
The decision was booked in Sumitomo’s September accounts, in which the company acknowledged the facility was worthless despite being barely 10 years old.
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.
Kansai is believed to have made similar accounting changes, meaning both companies have reduced their equity stakes to zero.
The development also coincides with growing challenges for the power station near Collie, south of Perth, where it produces up to 15 per cent of the energy used in the state’s biggest grid.
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.
Instead, the banks sold their debt stakes at a discount to distressed debt specialists – so-called vulture funds – including Oaktree Capital and Elliot Management.
Solar threatening coal market
At the same time, Bluewaters and other coal-fired power stations in WA have been dealing with tougher trading conditions as renewable energy led by solar increasingly hollows out the market.
The Institute of Energy Economics and Financial Analysis, a think tank funded by environmental philanthropists, said Sumitomo had been left with little choice other than to write off its investment in Bluewaters.
Simon Nicholas, an energy finance analyst at IEEFA, said the decision was important in a global context because it highlighted the extraordinary changes underway in energy.
“I think this is an absolutely classic example of what we’re likely to see going forward across Australia and around the world,” Mr Nicholas said.
“In a developed power market, a relatively new – really, very new – coal-fired power station has been deemed to have effectively no value.
“It’s a very important example that’s flown under the radar.”
In its results presentation, Sumitomo said it “recognised losses on the investment” in Bluewaters after reassessing what revenues it was likely to recover from the asset.
The ABC contacted Bluewaters for comment.
Mr Nicholas said it was difficult to know whether Bluewaters’ problems with coal supply from the beleaguered Griffin Coal mine or increased competition from renewable energy was a bigger reason in the write-down.
However, he said “dramatic shift” toward green sources of power such as rooftop and utility-scale solar and wind farms suggested other companies with coal-fired plants would have to follow suit.
In a sign of these pressures, the WA Government yesterday announced a pricing trial aimed at encouraging households to soak up the soaring amounts of solar power flooding on to the grid during the middle of the day.
“In Western Australia, the penetration of rooftop solar is huge, amongst the highest in the world,” Mr Nicholas said.
“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.”