Carbon price caution stifles investment

Sydney Morning Herald
Tuesday 20/7/2010 Page: 5

POWER companies have slashed $10 billion from their spending plans because of growing uncertainty surrounding carbon policy, an industry survey says. According to the Energy Supply Association of Australia, utilities expect their capital expenditure on new power stations in the next five years to be $8.2 billion, down from $18 billion last year.

The industry, which has complained that repeated delays to emissions trading have stalled investment, blamed the fall on carbon policy uncertainty and tighter access to credit. The survey of 31 energy companies comes at a time when utilities are facing growing investment demands to upgrade an ageing network and address environmental concerns. Some industry sources say power companies will struggle to raise enough money from capital markets until a price on carbon has been established.

Besides carbon policy, the association also said the recently passed renewable energy target, which requires 20% of power to come from renewable sources, had put a question mark over whether utilities could pass on higher costs to customers. "Regulatory uncertainty around carbon policy and the effects of the legislated renewable energy target are having substantial effects on the credit quality of carbon-intensive generators", the chief executive of the association. Brad Page, said.

Based on responses collected in the first quarter of this year, the survey found $94.1 billion was needed to refinance existing power assets, down from $97.1 billion in the previous survey. But the report found lenders had imposed "substantial" increases in their margins when lending to the sector, and this was curbing the sector's willingness to invest further. "Despite a slight recovery from the financial downturn experienced in 2008, the current state of financial markets and the uncertainty associated with carbon policy continues to create a situation where access to both debt and equity is severely restricted", it said.

The report came as Australia's largest private generator - UK-listed International Power - said it had resumed merger talks with GDF Suez of France. Under the deal, the utilities would merge their overseas assets. Brokers have said it would make sense for such a merged group to offload its Australian assets, down from $97.1 billion in the previous survey.