2019-03-16 by W.M.
Carnegie Clean Energy’s failed Albany wave farm project delivers handful of winners, long line of losers
Just two years after revealing its grand vision to turn the West Australian town of Albany into a world-famous renewable energy hub by harnessing the power of waves, the WA Government is walking away.
It was touted as Australia’s first commercial-scale wave farm, but Carnegie Clean Energy could not even get the project past its first milestone.
Its failure has hurt not just the people of Albany — who were excited about the Government’s plan for their future — but their fellow WA taxpayers, who have got little to see for the $2.6 million they paid Carnegie.
There are many passionate believers in the potential of wave energy who have lost money or had their hopes shattered by the demise of the $16 million project.
Analysts say the failure of Carnegie’s wave farm project is a major setback for the industry. (Supplied: ABC Radio)
Energy analyst Simon Holmes a Court said it was a huge setback for Australia’s fledgling wave industry as it struggled to compete with solar and wind energy.
“So while the potential is there, the economics of the [research and development] and bringing a solution to market is very difficult and very challenging,” he said.
“It’s very sad that such a lot of work has gone into the Carnegie solution, but they haven’t been able to bring it to market fast enough in order to compete with wind and solar.”
‘We have honoured our commitment’: MacTiernan
The axing of the project is also a huge loss of face for the WA Government, especially its Regional Development Minister Alannah MacTiernan, who rejected suggestions she had broken an election promise.
“No, we have honoured our commitment,” she said.
“We are deeply serious about it. I think of course when circumstances change that governments have to react.”
But the WA Government’s commitment is clear in the media statement issued by now-WA Premier Mark McGowan during the 2017 election campaign.
In opposition, Mark McGowan spruiked the deal with Carnegie’s then-CEO Mike Ottaviano. (Facebook: Mark McGowan)
“A new common user facility will allow Carnegie Clean Energy and others to establish wave energy in Albany, to help power households and create jobs,” it said.
With Ms MacTiernan in the audience, Mr McGowan went on to tell a media conference:
“The beauty of this is that by creating the common user infrastructure we can get wave energy companies to establish in Albany, connect into the grid, stabilise the system in the Great Southern, provide additional jobs and create a centre of excellence for wave technology in Albany.
This is great news for Western Australia. It will create hundreds of jobs, it puts us at the forefront of wave energy around the world, and wave energy is secure energy.”
Now, 17 months after Carnegie was awarded the contract, we have been told a common user facility will not be built using taxpayers’ funds and no electricity will be generated.
Only 15 jobs have been created, and they are either in Perth or overseas.
Many Albany residents were excited about what the wave farm at Sandpatch would mean for their future. (ABC News: Benjamin Gubana)
Ms MacTiernan, who is renowned for completing big projects, also insisted that the $2.6 million paid to Carnegie was not being wasted because it would be used for marine research.
“That money was largely spent on the development of the data, on the understanding of the ocean floor, of the energy,” she said.
“That material is now with UWA, so we have paid for it but it is certainly not lost.”
Weak business model hinders project
Carnegie received this money after belatedly meeting some of the requirements of its first project milestone, namely starting to develop the wave energy project site at Sandpatch, west of Albany.
But Ms MacTiernan’s claim that Carnegie had spent much of the money on research differed to what she told the ABC in October.
“They have spent in the order of $4 million on both capital and staff and personnel to do the detailed design for the common user infrastructure,” she said.
Ms MacTiernan (second from right) says she doesn’t believe the Government’s investment in Carnegie has been wasted. (ABC News: Benjamin Gubana)
However, no-one disputes that Carnegie’s financial woes were the key factor in the failure of the project, which were not helped by the Federal Government’s plans to change the rules around the research and development tax incentive.
But even before the changes were announced, a cursory look at Carnegie’s books would have shown the weaknesses in its business model, particularly its reliance on government grants and tax breaks, combined with high executive salaries.
Nationals MP Terry Redman believes taxpayers’ money should have been protected by the preparation of a business case, using Royalties for Regions funding.
But Ms MacTiernan said business cases were not necessary for research and development projects.
This is despite a recommendation by the Langoulant inquiry — commissioned by the McGowan Government upon coming to office — that all Royalties for Regions projects worth more than $1 million have business cases, which are presented to Cabinet and signed off by Treasury.
High-paid executives, cancer patients the winners
But not everyone has walked away a loser from the failed project.
Until recently, the cost of top-level executives has not been cheap for a company which has never made a profit.
Before Carnegie began to tighten its belt about six months ago, its annual bill for board and executive salaries was about $1.4 million.
Former chief executive and managing director Michael Ottaviano took home a pay package of more than $780,000 in 2016-17.
He was made redundant last year, taking with him a payout of six months’ salary.
Around the time this photo was taken in 2017, Michael Ottaviano took home an annual salary of $780,000. (ABC News: Andrew O’Connor)
Previous managing director John Davidson also received a redundancy payment of $378,000 in June last year.
He left his $350,000-plus package at the company after a “board renewal” process.
More positively, the money allocated to the Albany project in the budget has been shifted to a more realistic cause — improving the treatment of cancer patients in the country.
But this time, the WA Government said the money would not be spent until a business case had been completed.