Infigen Energy expects profits to drop as demand falls
Takeover target Infigen Energy expects profits to fall this financial year and has suspended shareholder distributions indefinitely.
Takeover target Infigen Energy expects profits to fall this financial year and has suspended shareholder distributions indefinitely as sharply lower electricity prices and a fall in demand because of COVID-19 eased volatility in the national electricity market.
Infigen, which has recommended a $893m bid from Spanish suitor Iberdrola, said net revenue and earnings before interest, tax, depreciation and amortisation would be “materially lower” in 2021 as the effect of the economic crisis from the pandemic hits the bottom line.
Wholesale baseload electricity prices in NSW are due to fall to $55 per megawatt hour this financial year from $79MWh in 2020 and drop 23 per cent in Victoria across the same timeframe and 15 per cent in South Australia because of lower overall demand.
“Oversupply is created not only because of demand reduction associated with restrictions and economic contraction but because generators are not undergoing expected maintenance because of the difficulties undertaking it in the current environment, which restricts movement of people to sites and anticipated new supply from renewable generators as it enters the market,” Infigen said after releasing its fourth quarter production figures. “This oversupply is reducing market volatility and flattening prices.”
Large-scale generation certificate prices also are falling from record highs with Infigen’s expected LGC price forecast at $34 per LGC in 2021 compared with $56 last financial year.
Infigen said the fall in future electricity prices would lead it to record a non-cash loss of $15m to $20m on the fair value of derivative financial instruments at its 2020 fiscal results. It will take a $17m to $19m non-cash loss from interest rate swaps due to the decline in rates from the economic slump and flagged an $8m provision for change of control fees.
Distributions to shareholders also have been suspended “indefinitely” with the company citing a subdued earnings outlook, the need for additional investment to fund growth and keeping a robust balance sheet given the deepening recession.
The downbeat outlook may strengthen Iberdrola’s 92c a share pitch to gain ownership of Australia’s largest listed wind power generator. It holds 44.7 per cent of Infigen stock and its offer is due to close on Friday. The rival bidder, Philippines-controlled UAC Energy, owns a 20 per cent stake.
Infigen saw production from its own renewable energy assets rise 2 per cent in the fourth quarter to 414 gigawatt hours but net revenue dropped 26 per cent to $47.1m due to lower power prices.
“Although Infigen’s business continues to demonstrate operational resilience to the pandemic, the decline in domestic economic activity and fuel prices is having a substantial impact on electricity prices and Infigen’s near-term earnings outlook,” it said.
Infigen noted the 20-year outlook issued on July 30 by the power grid operator called for substantial renewables investment to offset coal plant retirements.
By 2035 nearly 90 per cent of power demand could be met by renewable generation during periods through the day.
However, that will require up to 50 gigawatts of large-scale solar and wind to be added under the most aggressive plan to cut emissions, representing nearly all the current capacity of the market to be built in just two decades, the Australian Energy Market Operator has forecast.
