Greencoat Wind Farms Part 1 - Gortahile

Greencoat Renewables recently purchased Gortahile wind farm in Co. Laois for an undisclosed sum from a Dutch owned company Glennmont Clean Energy. It has been operating for about eight years and has a capacity of 20MW. It was originally built by German company ABO Wind, then sold to a Danish green fund, then repurchased by ABO for €42 million in 2010. It was also apparently owned by a French company at some stage. It is now back in Irish hands.

It's accounts for last year show it made a profit of € 288k but with gains on financial instruments, comprising interest rate swaps, making up about 45% of these profits. Like depreciation, these financial instruments are non cash items. To get a better look at the financial position of the wind farm, one needs to look at the cash flow statement.

The actual cash generated after paying interest was €1.5 million. The company repaid borrowers to the tune of € 2 million and so incurred a cash deficit of about half a million euros. However, they still showed total cash assets of € 2 million thanks to the waiver of a  € 3.6 million  parent company loan in 2017.

The wind farm's short term liabilities exceeded its short term assets by € 90k, which means it was unable to meet it's debts as they fell due.  The Dutch parent company had vouched it's willingness to provide enough income to keep the wind farm in operation till 2019. At the end of last year, it had combined losses of €2.3 million and debts of over € 18 million.

Will Greencoat need to prop up the wind farm with more cash? It remains a bit of a mystery why a wind farm in such difficulties has generated so many buyers but perhaps it's telling that the recent price tag was not disclosed.

Greencoat Renewables and the Magic of Fair Value Accounting

Make the prices rather higher than lower so that you can make a larger profit - Luca Pacioli, 16th century mathematician

The Irish media recently announced with great fanfare that Income and Profits were up sharply at Greencoat Renewables for the year 2018. On closer scrutiny, things don't look as rosy as one might think. The accounts show income of € 58m.

The majority of this income, € 46m, has nothing to do with actual wind energy or trading as most people would have assumed. It is in fact due to an accounting trick called a fair value adjustment. This boosted the income figure to produce a profit of €43m compared with a loss of € 2.5m for the previous year.   Interestingly, this new profit figure did not result in any tax to be paid.

The Accountancy Standard IFRS No. 13 allows assets to be stated at their Fair Value as opposed to their cost, which conventionally would have been the case. The Fair Value is the amount that an asset (in this case the wind turbines) could be traded for, i.e the selling price. A clause in the accounting standard allows room for subjective assumptions where there is no readily available market information. Greencoat have made use of this clause by increasing the asset life assumption from 25 to 30 years which allows them to record a higher fair value for their wind farm investments. This subjective increase in the value of their wind turbine assets is then recorded in the Income Statement as if normal income.

No actual cash is generated from fair value adjustments, it is simply a bookkeeping exercise to boost profits.