Rimfire Energy seeks $1.4m damages from owner of NT power assets for lack of electricity

An energy retailer that entered into power purchase agreements with the owner of a solar farm at Batchelor and gas-fired station at Hudson Creek is seeking damages over their failure to produce electricity.

The 12MW Hudson Creek Power Station, owned by a subsidiary of Merricks Capital, is yet to produce electricity despite setting a target commercial operation date of mid-2021. Picture: Merricks Capital

A Northern Territory energy retailer that entered into power purchase agreements with the owner of two Top End electricity generators, a solar farm and a gas-fired power station, is seeking $1.4 million worth of damages over their failure to produce electricity.

According to a recent decision of Federal Court Justice David O’Callaghan, Rimfire Energy, which entered the Territory market in 2014, signed two power purchase agreements (PPAs) with entities controlled by Merricks Capital in February 2020.

The PPAs related to two assets owned by Merricks subsidiaries, the 10MW Batchelor 2 Solar Farm and 12MW Hudson Creek gas-fired power station, neither of which have generated a watt of electricity.

The two PPAs specified a ‘Target Commercial Operation Date’ of either June 30 or July 1, 2021, subject to an extension of time clause, according to Justice O’Callaghan.

On November 21, 2022, well after the dates were missed, Rimfire invoiced the Merricks entities for liquidated damages (i.e. contractually agreed damages in construction contracts) totalling $1.4m on the basis they failed to achieve the targets.

The 10MW Batchelor 2 Solar Farm, owned by a subsidiary of Merricks Capital, has failed to generate electricity despite setting a target commercial operation date of mid-2021. Picture: Merricks Capital

The dispute before Justice O’Callaghan was whether the Merricks subsidiaries were liable to pay 50 per cent – $700,000 – of Rimfire’s claim now via a mechanism inserted into the PPAs known colloquially as a “pay now, argue later” clause.

Rimfire argued that under the PPA terms, it was not necessary to determine whether the Merricks subsidiaries had lawfully sought extensions of time for it to be liable to pay the $700,000 upfront.

The Merricks subsidiaries countered that, in circumstances where there was a dispute as to whether the extension of time had been sought validly in accordance with the PPA terms, it was “impossible” to know what the Target Commercial Operation Date was.

“And without knowing the Target Commercial Operation Date, the applicant [Rimfire] cannot possibly issue, and be paid any amount of, invoices which rely on that date having passed,” Justice O’Callaghan said, summarising the respondent’s case.

He ruled that Rimfire’s interpretation of the relevant clause of the PPA was the correct one.

“Where an invoice issued under the PPA is disputed on a bona fide basis, the paying party must pay 50 per cent of the disputed amount to the invoicing party on an interim basis,” he said.

“Once the dispute has been finally resolved, the paying party then pays the invoicing party any amount determined to be still outstanding, or the invoicing party pays back any proportion of the 50 per cent interim payment found to be an overpayment.”

In addition to the $1.4m, Rimfire also seeks interest on the liquidated damages, plus additional damages, the amount of which was not disclosed in Justice O’Callaghan’s decision, under the Australian Consumer Law.

The substantive issue – whether the Merricks subsidiaries are liable to pay the $1.4m sought in full, or whether they had validly secured extensions of time in accordance with the PPAs, will be determined at a later date.

The Batchelor Solar Farm is one of four Top End solar farms built earlier this decade that are still unable to feed electricity into the Darwin-Katherine Interconnected System (Eni Plenitude’s 25MW Katherine Solar Farm is generating at 25 per cent of its nameplate capacity).

It was not immediately clear what caused Hudson Creek Power Station to miss its target date by nearly three years and counting.

Merricks Capital was contacted for comment.