Clean Power

Published on October 28th, 2014 | by Joshua S Hill

Australian RET “Broken Promises” Would Hurt Existing Renewable Investors

October 28th, 2014 by Joshua S Hill

A new report published by the Australian Clean Energy Council has found that slashing the Renewable Energy Target as proposed by the current liberal government would “smash” the value of clean energy projects that are already operating, and even expose the government to “massive compensation claims” by those developers affected.

The report, Financing impacts of amendments to the Renewable Energy Target (PDF), was conducted by law firm Baker & McKenzie, and examines the risks that could arise if the government is successful in its attempt to meddle with the country’s Renewable Energy Target (RET).

Many critics of the change have raised the impact it would have on future investment and development opportunities in the clean energy sector, however the report raises the possibility that existing investments would also be impacted.

“A retrospective change to the policy would result in financial impairment and a substantial risk that existing projects and businesses would collapse, as well as inflicting damage on Australia’s reputation as a safe place to invest,” said Clean Energy Council Acting Chief Executive Kane Thornton.

“This report shows that a cut in the target of the scale proposed by the government would have far-reaching and damaging consequences, and also that ensuring adequate compensation would be an extraordinarily complex and expensive task.”

Moving the Goalposts on Existing Investment

Over $10 billion has been invested into large-scale Australian renewable energy projects — investments that were made on the legislated 41,000 GWh target that the country’s Renewable Energy Target specified.

“The legislated policy provides the revenue to underpin the investments in renewable energy projects out to 2030, but this revenue would collapse if the RET is cut, smashing the companies which invested behind the policy based on its long-standing bipartisan support,” said Thornton.

“The Renewable Energy Target legislation that has been supported by all political parties for over a decade is explicit about the 41,000 GWh target, and the Coalition re-stated its commitment to the fixed 41,000 GWh target in the lead up to the recent election.

“Moving the goal posts so significantly on investors would result in massive asset devaluation, job losses and business closures, and send a signal to international investors that Australia is closed for business. The future viability of existing renewable energy projects is highly dependent on a strong, bipartisan policy.”

Political Sabre-Rattling

Significant criticism has followed the Liberal Government’s attempts to roll-back or decrease the Australian RET. And while current attempts to negotiate a middle-ground between the two parties seems to have come to a standstill — the Liberal government lead by Prime Minister Tony Abbott firm on a desire to drop the Target to the mid-20,000 GWh’s, while the opposition led by Bill Shorten are similarly firm in preventing this — the mounting evidence of harm that would follow any such action seems to be falling on deaf ears.

The mounting evidence includes the recent Global Green Economy Index which was released last week, and ranked Australia at 37 out of 60 countries — a dismal showing, considering the countries ahead and behind.

But the GGEI seemed to have no impact on the negotiations between Liberal and Labor parties, as the industry minister Ian Macfarlane was clear on his party’s goals:

“It won’t be a 27 per cent Renewable Energy Target. It will be a 20 per cent Renewable Energy Target, which I think is what Australia signed up for.”

Unsurprisingly, Labor Leader Bill Shorten shot back immediately:

“The government say they want a real 20 per cent, I call it a fraud 20 per cent, a fake 20 per cent. The truth of the matter is that renewable energy is part of our energy mix. It’s had a great benefit for a whole lot of consumers. We’ve seen thousands of jobs created…and we’ve seen billions of dollars of investment. The real damage that this government’s doing in renewable energy cannot be overstated.”

Main Findings

The main findings from the CEC’s report are as follows:

Any substantial reduction of the RET will lead to renewable energy certificate prices being substantially lower than prices modelled for operating and future projects for the purposes of equity and debt financing.
Any substantial reduction to the RET will trigger a review of existing funding arrangements by lenders. The cost of capital for equity is likely to be higher, reflecting the higher cost.
There are likely to be legal challenges to any legislative change made to the RET which results in adverse financial impacts on renewable energy operators and developers.
Any compensation and transitional assistance regime will need to be designed for the specific financial arrangements of each and every renewable energy project.
Designing and implementing compensation or transitional assistance will involve significant inherent complexities and policy issues that could potentially undermine the overall effectiveness and efficiency of a reduced RET.
There is a risk for the Australian Government that the policy objective of achieving even reduced targets might not be met because of the impacts resulting from sovereign risk associated with a reduction to the RET.
The vast majority of existing projects will be up for refinancing over the period 2016-2018. Existing projects might not be able to meet the minimum financing requirements based on the revised set of risk assumptions and parameters.

Where To Now?

Regularly following the Renewable Energy Target negotiations in the media is a little depressing for locals such as myself. The Liberal Party seem hell-bent on ignoring any and all evidence suggesting that messing with the RET at all will have catastrophic consequences across a myriad of fields — investment, energy, employment, political, etc. While, on the other hand, their opponents seem to be able to make no ground whatsoever, or be heard by this wilfully deaf Government.

In the end, there is very little way at the moment to predict how this will all turn out. We can but hope that the Australian Government listens to reason — though my hopes aren’t high.

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Tags: Australia, Australian RET, CEC, Clean Energy Council, Renewable Energy Target, RET, Tony Abbott

About the Author

Joshua S Hill I'm a Christian, a nerd, a geek, and I believe that we're pretty quickly directing planet-Earth into hell in a handbasket! I also write for Fantasy Book Review (.co.uk), and can be found writing articles for a variety of other sites. Check me out at about.me for more.

heltonja

If a business is dependent on government for its profitability, it accepts a certain risk that government policy will change. I’ve got no sympathy for any company living off the government teat, when the milk finally runs out.
Michael G

Whenever I get discouraged by the US’s slow progress in renewables, I look to Australia and realize it could be worse. Maybe it is being born in an English-speaking country that has some effect? The “th” fricative is unique to English – perhaps hearing “th” on a daily basis as you grow up has adverse effects on one’s IQ?

Fortunately, I was born in Holland so other than a craving for round cheese and being noticeably taller than my parents, I suffered no ill effects.
- Larmion
  
  Don’t be too cocky. The US has a 14% renewables share (including hydro). Britain is closing in on 10%. Australia and Canada do even better.
  
  The Netherlands, meanwhile, produce far fewer renewable energy. Not having any hydro explains much of that to be sure, but still.
Dag Johansen

Seriously, Australia, how did you vote for that science-denying Tony Abbott? May China slash coal imports and make that jerk look like the sexist racist that he is.
- Larmion
  
  Careful what you wish for. China is going to be burning vast quantities of coal for decades to come, no matter what. If it’s not Australian coal, it will be Chinese or Indonesian.
  
  The Chinese coal is high sulphur, fairly low grade coal that is disastrous to human health. The Indonesian is even worse, as its carbon content is barely higher than that of brown coal – producing an equivalent amount of electricity from that junk will release vastly more carbon dioxide than using higher grade, leaner Australian coal.
  
  And Indonesian coal of course is associated with vast deforestation – deforestation that emits absolutely huge amounts of carbon dioxide.
  
  Coal is always bad, but some variaties are slightly worse than others. Australian coal falls in the ‘better than average’ category.
  
  We’re all angry at Australia right now, and we should be. But that’s no reason to wish for an even greater environmental disaster

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Australian RET “Broken Promises” Would Hurt Existing Renewable Investors