This is part of a broader analysis of Vivopower's subsidiaries. For more click here.
One sure thing is, Vivopower's solar journey hasn't been the easiest. Like we covered earlier, they had multiples setbacks in their Joint Venture with ISS in the US, leading to more than 237 MW of discontinued projects, with a further 492 MW put on hold, it suffices to say that the US solar portfolio has been in a lot of trouble since its acquisition.
Then... If the American market didn't generate much income for the group in the first half of 2021, Which market did?
As you can see, Australia represents the vast majority of revenues generated by Vivopower in the first half of 2021.
J.A Martin electrical
Founded in 1968, J.A. Martin is a specialized industrial electrical engineering and power services company. They operate from two premises in New South Wales, including a factory in Newcastle which manufactures and services customized industrial switchboards and motor control centres. They also have an office and workshop facility in the Hunter Valley.
With 103 employees and a fleet of 76 vehicles, J.A. Martin serviced almost 250 customers in the fiscal year ended 30 June 2020 across a diverse range of industries, including solar farms, grain handling and agriculture, water and gas utilities, cotton gins, commercial buildings, mining, marine and rail infrastructure.
J.A Martin first solar project was in 2016, since then they completed over 150 MW of solar projects, with another 300+ MW in their pipeline.
For the sake of simplicity, I will include some Solar projects that aren't under J.A Martin management belt, but still are on Australian soil.
Recent solar projects
Daisy Hill Solar Farm – 5 MW
Yoogali Solar Farm – 15 MW
Molong Solar Farm – 39MW
Goonumbla Solar Farm – 89MW
Revenues
In their last year-end financials, they stated that several projects were delayed from FY20 due to COVID-19 related disruption and are due to be completed in FY21. That apparently lead to declining revenues year-over-year.
Source: 2020 annual report This is how revenues where segmented in the first half of 2021.
And this one is from the 2020 year-end presentation
We can see that they are somewhat well diversified in many crucial sectors of the economy.
As they continue to develop the Tembo program we could see growth from the mining sector, that could lead to a bigger concentration in a single activity.
Solar projects
J.A Martin.
Since the transformation of J.A. Martin’s revenue base with a focus on the rapidly growing solar farm sector. J.A. Martin’s total of completed and contracted solar farms reached over 150 MWdc, a milestone reached within three years of commencing solar operations. They estimate their current pipeline at 300mw and alleged to be working on 3 new solar project as of 2020 year-end financials.
The Molong Solar Farm – 39MW
Located 40 kilometers northwest of the town of Orange in New South Wales. Energized in late November 2020 and completed in January 2021, the Molong Solar Farm will generate approximately 78,000 MWh of clean energy per year, enough to power 11,000 homes. The project will displace over 53,000 tonnes of carbon dioxide emissions annually, the equivalent of taking 10,500 gasoline cars off the road.
The 39MW Molong Solar Farm
The business was awarded a contract to complete all electrical works for the 39 MWdc Molong Solar Farm in Australia. This is the second solar farm to be completed with lead contractor, Grupo Gransolar. The ongoing relationship is expected to give rise to further small and medium scale solar projects in the future.
It is important to note that J.A. Martin role on the Molong Solar Farm consisted of completing all electrical works, hard to speculate on how many revenues they captured from this but one should not expect the same revenues as an EPC contracts or a build, own and operate project.
The Goonumbla Solar Farm – 89MW
In June 2020, near the town of Parkes in New South Wale and in partnership with lead contractor Grupo Gransolar, J.A. Martin completed all electrical works for the Goonumbla Solar Farm. Generating approximately 195,000 MWh of clean energy per year, enough to power 45,000 homes and avoid 140,000 tonnes of carbon dioxide emissions, electricity produced by the project will be sold under a power purchase agreement (PPA) with Australian Federal government-owned generator and retailer Snowy Hydro Limited.
For more watch:
FRV has secured financing for the project in 2019 The debt was provided by ING and
DZ Bank with ING taking the majority
stake in the financing package.
The 4.77MWp solar farm in Goondiwind Queensland was built in just over 4 months in 2017. JA Martin worked closely with the principal YD Projects Pty Ltd to perform the electrical installation and deliver an outstanding value for money project.
The project was carried and financed privately by the Mailer Family, in an effort to diversify from agricultural activities and de-risk some part of their incomes in the advent of continuous climate catastrophe like flood, fire and drought, pretty common occurrences in this part of Australia.
Vivopower and ITP Solar porfolio
Following a term sheet signed in February 2018, VivoPower entered into a definitive investment agreement with ITP in July 2018, for the development of a portfolio of utility-scale solar projects in New South Wales to an aggregate minimum target of 50 MW.
ITP is a global leader in renewable energy engineering, strategy and construction, and in energy sector analytics. Under the terms of the investment agreement, VivoPower funds up to 1.4 cents per watt (AC) of development costs per project in exchange for a 60% equity stake in each project, with an opportunity to achieve a sale and transfer at multiple stages, as early as shovel-ready. The projects will be developed on a merchant basis, with corporate offsite PPAs sought on an opportunistic basis during the development period.
To date, the Company has commenced development of two solar projects under the ITP investment agreement, the 15 MW Yoogali Solar Farm and the 5 MW Daisy Hill Solar Farm, both located in the Riverina region of New South Wales.
Yoogali Solar Farm – 15MW
The Company commenced development of the first project under the ITP investment agreement, Yoogali Solar Farm, in July 2018. It was expected to be shovel-ready in October 2019 and to complete development by June 2020. However, as of year ended 30 June 2020 earnings: "It was hampered in its development efforts, firstly due to regulatory approval delays in relation to the 15 MW Yoogali solar farm."
The approval timing has been delayed from original estimates due to an increasingly rigorous Australian regulatory approval process for projects over 5 MW in size. This increased scrutiny is being driven by the number of new solar projects coming on-line in certain areas of Australia resulting in network stability issues and causing delays to new project approval. The Company is currently investigating options for completing, selling, or abandoning the Yoogali project based on local electricity network constraints.
The Company commenced development of the second project under the ITP investment Agreement, the 4.99 MW Daisy Hill Solar Farm, in July 2019. Solar farms under 5 MW are not subject to the same approval process as larger projects and, at present, are not experiencing the same delays as larger projects. Accordingly, Daisy Hill has proceeded more efficiently through its development process and is expected to complete development and receive connection approval in early 2021.
On February 10, 2021, the Company announced that it had sold its majority stake in the Daisy Hill Solar Farm. The Company’s interest in Daisy Hill was acquired by an affiliate of ITP, with total consideration $0.2 million receivable by VivoPower in the sale representing a 2.1x multiple of the Company’s invested capital in the project.
Vivopower's first solar projects
VivoPower has developed and acquired a diverse portfolio of operating rooftop solar projects in Australia, totalling 2.8 MW across 85 sites in every Australian state and the Australian Capital Territory. These projects are fully contracted with commercial, municipal and non-profit customers under long-term PPAs. Pursuant to the Company’s strategy to recycle development capital, we have profitably monetized nearly all of these projects, having completed the sale of the Amaroo Solar Project (0.6 MW) in February 2018, the Express Power Portfolio of solar projects (0.2 MW) in September 2018, the Juice Capital Portfolio of solar projects (0.3 MW) in November 2018, and the Sun Connect Portfolio of solar projects (1.6 MW) between January and October 2019.
The sale of the remaining Sun Connect Portfolio projects in October 2019 was a significant event for the Company during the past financial year. The Sun Connect portfolio was acquired in December 2015 and originally consisted of 68 commercial and industrial sites totalling 1.6 MW spread across five Australian states, with PPA end dates between 2033 and 2035. The Company invested considerable time and effort to improve the portfolio including site performance evaluations, warranty replacements of faulty components and customer communication. Prior to sale of the remaining portfolio, a total of 15 sites were sold through individual transactions for gross proceeds of $305,000. In October 2019, the Company announced the sale of the remaining 53 projects for USD$1.1 million, which VivoPower believes reflects an attractive return on invested capital. Combined with proceeds from individual project sales and monthly PPA receipts, the sale represented a 2.0x multiple of invested capital and an unlevered IRR of 20.1% before tax over the life of the Company’s investment in the Sun Connect Portfolio.
In conclusion
Vivopower's Australian solar assets are definitely not reflecting the best side of the organization, with multiples projects stalling due to regulations and delays, we came to the conclusion that Vivopower has been more successful at doing EPC work through J.A Martin Electrical than at developing, owning and operating projects. We also believe that they lacked transparency when not stating their exact role and the revenues they could possibly capture from said role in multiples projects announcements, this coupled with the ITP partnership that never delivered the 50 MW they announced. Nonetheless, Vivopower's solar projects still benefit from strong tailwinds and hopefully the experience they acquired since 2015 will help the company develop more integrated, all-in-one micro-grids solutions for future costumers.
Disclaimer: We are long $VVPR, not investment advice, not a registered professional. You could lose everything, buy at your own risks.
2021-08-06 Burlap's Gambles
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