TransAlta Renewables (TSX: RNW) is facing some major headwinds as it relates to their Kent Hills projects in New Brunswick. Following an initial tower failure back in October that saw a wind turbine come crashing to the ground, the firm was forced to take the operation offline and review what exactly occurred.
As it turns out, the cause of the failure was deficiencies in the design of the foundations used for the wind towers. As a result, a total of 50 foundations at the Kent 1 and Kent 2 sites are required to be replaced, a process which isn’t expected to be complete until the end of 2023. Due to safety concerns, wind turbines will be offline until the foundations are remedied, meaning revenue generation from the project is halted for the foreseeable future.
In financial terms, the halting of operations at Kent Hills is not going to come cheap. First, the replacement of the foundations is expected to cost the company anywhere between $75 million and $100 million in aggregate, as well as $3.4 million per month that all wind turbines are offline, meaning roughly $40.8 million in lost revenue per year. Turbines will be returned to power on an individualized basis however, slightly reducing this impact.
And then there is the issue of a $222 million non-recourse projects bond that is secured by the Kent Hills 1 and 2 projects, among other facilities. The result, is that the company is technically in default of this bond and must now work with lenders to receive a waiver and the required amendments, or face the potential of the notes and related interest coming due.
The facilities are currently contracted to provide power to New Brunswick Power Corp through to 2035, and is working with the utility to rectify the situation.
TransAlta Renewables last traded at $18.00 on the TSX.
Information for this briefing was found via Sedar and the companies mentioned. Not a recommendation to buy or sell any securities. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
