RET “ain’t broke – so don’t fix it”
21 May 2014
Infigen Energy has submitted to the RET Review panel that there should be no material change to the parameters of the Large-scale Renewable Energy Target (LRET) scheme.
In its submission Infigen noted that:
- The scheme is making good progress towards the legislated annual target of 41,000 GWh of utility scale renewable energy by 2020;
- Large-scale renewable energy is presently augmenting and will encourage the substitution of “clean” energy for carbon-intensive energy to reduce emissions, as intended; and
- The low marginal cost of renewable energy is reducing wholesale electricity prices to the benefit of consumers.
Miles George, Infigen’s Managing Director said, “The overwhelming global scientific consensus confirms the need for action to reduce carbon emissions as an urgent priority. The LRET scheme provides a certain, verifiable and proven mechanism to contribute to this action, and at no cost to the Federal Budget. Few, if any, alternative measures have these attributes.”
Infigen Energy has proposed that the scheme should continue and be extended to align with investment horizons for further large-scale renewable energy investments. Infigen also submitted that future statutory RET reviews be removed.
Mr George said, “The scheme’s statutory reviews have served only to increase uncertainty for all stakeholders, and provided cover for inaction. The statutory reviews are not serving the objectives of the RET legislation as intended, and should be removed.”
Infigen submitted that if demand for electricity resumes growth in the near future, large-scale renewable energy may well be the only viable and financeable option for supply. Gas is becoming too expensive to use in Australian electricity generation. New coal-fired generation is unlikely to be financeable due to concerns about future carbon pricing and/or emissions controls. Any adverse short term change in the LRET will weaken the confidence of capital providers to fund the required infrastructure, and renewable energy generation might not be readily available to deliver the electricity we need.
Mr George said, “The uncertainty caused by earlier changes, repeated reviews, and potential further policy variations has brought new commercial development to a standstill, and reduced the value of existing investments made in good faith.”
Long standing broad based political support led investors to believe the RET targets were real and gave them confidence to invest in the sector. Commercial operators of renewable energy plant, including Infigen, have made over $18 billion of investments that were predicated on the expected market price of Large-scale Generation Certificates (LGCs) associated with the progressively increasing obligations that had been legislated. In order to achieve profitability over their lifetime and justify the initial investment, these long-life investments typically rely more heavily on expected cash flows from the later years of their planned operation. These expected cash flows are now threatened by adverse policy variations.
“It is proper for investors to bear the risk of construction, operation, and overall electricity market demand and pricing forecasts. But it is inappropriate for investors to bear the risk of material adverse change to the legislated targets for the LGCs that are generated. These targets were a central element in the business cases on which the investments were undertaken,” Mr George said.
Infigen submitted that if the Government was to be minded to weaken the RET scheme by altering the target or the time scale adversely, then transitional arrangements to offset the commercial detriment that would otherwise arise for existing and committed investments must be put in place (“grandfathering”).
Infigen has over 20,000 securityholders of which 99% by number are small retail investors, many of whom have been securityholders since the initial public offering in 2005. Infigen also has many large global infrastructure investors that have expressed concern about the potential sovereign risk aspects of possible regulatory change and have added their support to Infigen’s submission. These investors cite their experience of adverse regulatory change in the renewable energy sector in Europe, noting how this has caused much higher return hurdles to be required for all infrastructure investments in those countries.
In its submission Infigen also noted the message that the Prime Minister delivered to international investors in an important address to the World Economic Forum in Davos, Switzerland, on 23 January 2014. In the address the Prime Minister stated clearly, “What investors really need is greater confidence that governments won’t change the rules after the investment has been made.”
Infigen and its investors certainly agree.
About Infigen Energy
Infigen Energy is a specialist renewable energy business. We have interests in 24 wind farms across Australia and the United States. With a total installed capacity in excess of 1,600 MW (on an equity interest basis), we currently generate enough renewable energy per year to power over half a million households.
As a fully integrated renewable energy business in Australia, we develop, build, own and operate energy generation assets and directly manage the sale of the electricity that we produce to a range of customers in the wholesale market.
Infigen Energy trades on the Australian Securities Exchange under the code IFN.