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Turnbull’s NEG claims first major renewable energy victim

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The value of one of biggest renewable energy companies operating in Australia has been slashed dramatically following the unveiling of the Coaliton’s government’s proposed National Energy Guarantee.

Analysts at global investment bank Deutsche Bank said they had slashed the value of Tilt Renewables by around 15 per cent, mostly because the market ascribes no value to its development pipeline of more than 1650MW of wind and solar projects, which now have much less chance of seeing the light of day.

Energy analysts say that while the details of the NEG, put together by the Energy Security Board and enthusiastically embraced by incumbent energy groups, are not yet defined, the intent of the policy is clear: to stop the development of large scale wind and solar in their tracks.

And the result, analysts agree, will be higher prices, not lower.

The ESB modelling for the NEG policy proposal suggests a renewable energy share in Australia of 28-36 per cent by 2030, which represents little or no additional capacity added between 2020 and 2030.

“It just puts in doubt further renewable opportunities,” Deutsche Bank says in its report. “It would appear that Tilt’s development pipeline holds far less option value.” It has slashed its target price for the company by 14.6 per cent to $NZ2.26 a share from $NZ2.59.

Screen Shot 2017-10-25 at 12.30.56 PMIndeed, Deutsche says the market now ascribes no value to Tilt’s undeveloped pipeline of more than 1500MW of wind projects and 140MW of solar projects in Australia, and it noted that the market had taken a similarly dim view of Infigen Energy’s development portfolio of more than 900MW.

This has enormous implications for other renewable energy developers, and suggests that the more than 30GW of wind and solar projects in the pipeline across the country – a total project value of more than $50 billion – may also be similarly worthless if the new policy is put in place.

The irony is that analysts like Bloomberg New Energy Finance, Morgan Stanley and Deutsche Bank say that the lack of new renewable energy projects will mean higher prices for electricity, particularly as many of the new wind and solar projects were being contracted at less than $60/MWh, much lower than the current wholesale price.

“It could however keep upward pressure on near term (next three years) wholesale prices as less new renewable generation is brought to market,” Deutsche says.

That could actually be good for some of Tilt’s existing assets, such as the Snowtown 1 wind project in South Australia (pictured at top), which is ending its PPA at the end of this year, and the new Salt Creek wind farm, which is due to come into production in 2018/19 but which has not yet signed a contract.

“The higher outlook for near term pricing could boost Tilt’s near term growth expectation,” Deutsche says.

Indeed, all companies with existing assets, be they coal and gas assets, or wind and solar farms, are likely to benefit from this new policy proposal, which may explain why it has been embraced by the big utilities, and reportedly by renewable players such as Infigen which have large exposures to market prices from their existing assets.

The eight-page document, prepared at short notice by the ESB for the federal government, makes it clear that the amount of new renewables will slow dramatically once the renewable energy target is met in 2020.

BNEF notes that the share of renewables is expected to reach 28 per cent in 2020, including rooftop solar, which suggests no growth at the bottom end of the range and only limited growth at the top end, and then only if coal fired power stations close on current schedules.

The ESB modelling – prepared by the heads of Australia’s leading energy agencies, the AEMO, AEMC and the AER, and two other board members – has sent shockwaves through the industry.

There are questions over its independence, why the federal government has asked it to ignore the long term Paris climate target, concerns over the role of lobby groups in drafting the legislation, and analysts have flagged numerous reasons the proposal should be treated with caution.

See 30 reasons to question the National Energy Guarantee, and it’s not just politics. Bruce Mountain has compared the proposal to Soviet style planning.

South Australian premier Jay Weatherill has sent a letter to ESB chair Kerry Schott demanding to know when work began on the NEG, why it was done in secret “without adherence to proper processes” and if the ESB board members had been directed to appear with the Coalition at press conferences.

The states, all members of the COAG energy council, must approve the changes to the national electricity market rules that would allow the National Energy Guarantee to go ahead, but have been appalled by the lack of process and secrecy.

The ESB is supposed to report to the states through COAG, and Weatherill questioned its independence.

“Do you believe that the ESB is still an independent authority constituted with its main focus being to carry out and monitor the Finkel recommendations,” Weatherill asked.

He also queried the modelling and numbers produced, including the assumed bill savings of up to $100/year by 2030. “I would assume significant work was conducted by the (ESB) to support the claims,” Weatherill wrote. “I would appreciate if you could urgently provide this work in its entirety.”

It turns out that there was no modelling, and the states weren’t the only ones kept in the dark.

The energy and environment department had no input, and neither did any of the agencies involved in climate and renewable energy development – the Climate Change Authority, ARENA and the Clean Energy Regulator.

However, it is now clear that utility executives and private lobbyists were involved, and the principal lobbying body, the Business Council of Australia, is trying to position itself as a broker to the details of the scheme, directly usurping the role traditionally held by public servants.

Weatherill was even more damming in an interview on ABC’s Lateline program, saying the proposal was the result of “knuckle draggers in federal goernment that want to take us back to a past that has no relevance to a low carbon future.”

He said there was no way the states would approve the scheme – as they need to do for it to come into effect – if it is not serious about renewable energy and just “kicks the can down the road.”

 

   

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  • lin

    Again it appears that regardless of what the federal government say, their number one goal is to keep the price of electricity high. Rivers of gold from our pockets to their donors and mates offshore tax haven bank accounts.

    • juxx0r

      It’s time to sue, not the government, the Liberal party. Class action, 5 million households, $200/y over five years. Surely their donors are good for it.

      • Joe

        …Two Tonguer Turnbull will just flick the bill onto….Taxpayers.

  • Grpfast

    Bugger the future! just make sure your mates continue the life their accustomed and then they’ll take care of you when you finish in politics.

    • Joe

      And its kickoff in the Match of the Day…RE vs The Deniers – The COALition, The ESB, The MCA, The BCA, Rupert & co etc…and The Deniers have just scored an early goal. The score is The Deniers 1 vs RE 0…can RE recover ?

      • Grpfast

        Only if the “rebel states” stick to their guns and eventually LNP gets canned Federally.
        Not confident of that either. Federal Labor is very quiet. They’ll probably just wait. Let the conservatives shoot themselves in the foot, move in to power and do nothing.

  • trackdaze

    I fail to see how the business council of Australia is representing its members if it is effectively supporting higher costs.

    • Guy Stewart

      Some members are more represented than others.

    • solarguy

      A damned good point!

  • Joe

    I saw Premier Jay on last nights (24/10 ) Lateline show. He was in outstanding form nailing The COALition and Bananabee Joyce in particular over the evolving scandal that is The Murray Darling Basin Water Management Plan. Then the topic turned to energy and Premier Jay nailed the ESB media release as nothing more than headline talking points for Two Tongues Turnbull. If Premier Jay sticks to his fighting words then The NEG is not going to happen. Premeier Jay…a National Living Treasure.

    • Marg1

      Yes I saw Jay too – he sure nailed it. Well done Jay.

    • Guy Stewart

      He is fierce and I love it. I really hope it works and signals to other politicians that they can challenge some of the blatant absurdities in government policy (or its absence).

  • George Darroch

    Their prospects aren’t completely worthless. They get back most of their value as soon as Liberals get voted out.

    • Guy Stewart

      Agreed, this write down is heavy handed by the Deutche Bank.

      No value to a pipeline of more than 1650MW of wind and solar projects is absurd given the long term trends and short term set back.

      The whole ESB and this NEG has been cooked up in an afternoon on the time scale of an utility scale energy project. And it’s just as likely to disappear and never to be heard of again as it is to be fully implemented.

  • Rod

    I only saw snippets of the announcement but going by body language, Zilberman and to a lesser degree Schott didn’t look very comfortable.

    • solarguy

      No Rod they certainly didn’t.

      • Rod

        It wasn’t just my imagination then.
        I wish these people, Finkel included, would show some integrity and speak up or resign. The money is obviously too good.

        • solarguy

          Well let’s see if they do. Apart from money, there maybe another reason why their keep stumm.

        • solarguy

          The more I think about it, they look as if they were offered Grogan sangers for lunch.

  • Steven Gannon

    And a nice distraction yesterday, raiding the union offices again. An obvious attempt to move the news cycle on. They should be raiding the the IPA and LNP.

    • Joe

      Turnbull needs to be raided as well, to get to the bottom of his $1 million ‘donation’ at the last election. He danced around the subject for ages before coming…’sort of clean’. We need this to investigated…whose money, where id it come from and why the public dance when questions first arose.

  • Ian Porter

    Clear whats going on here. Turnbull and his Pitt Street mates are using energy security guarantees bolstered by the Snowy 2.0 plan (‘his’ visionary plan: read back up for coal, whacky but true) and the fact that the NEM stretches across 4 major states and a territory allows him to use the Federal gatekeeper approach to solve a problem that should be borne and managed by the states. Because the problem transits state borders, the government is using that as a lever

    Given these lack of sensibilities and a policy vacuum, it would behoove the states to turn their backs on the Feds, form their own energy backbone complete with targets, markets, policies, etc and to totally stonewall the Federal government with a closed door approach until they come to their senses. If the states can get their acts together, this could be a watershed moment and the states could get an upper hand on this matter entirely.

    Time for the states therefore to join forces and go it alone without Federal incompetencies interfering in their markets.

    • BushAxe

      The prospect of the states going it alone would be an interesting move, I could definitely see the Labor states doing it.

      • Mike Westerman

        SA has little to lose by sticking to its guns, and a lot to lose by giving in to Feds.

      • neroden

        Currently only New South Wales and Tasmania have non-Labor governments. All the other states and territories have Labor governments. Think about that!

        Tasmania polling is tipping Labor to win in 2018.

        New South Wales doesn’t vote until 2019. It would be funny and sad for Sydney if every other state went all-renewable and left NSW behind. But in fact even the NSW Libs seem to be opposing the federal COALition:

        https://www.theguardian.com/environment/2017/jul/04/clean-energy-target-best-deal-that-coal-will-get-says-nsw-energy-minister

        So I think *all* the states will reject Turnbull & Abbott’s coal-funded madness.

        • Joe

          Premier Gladys is on the record as saying that we /NSW can’t transition to RE too quickly…King Coal is alive and well in the good state of NSW. There’s plenty more Coal to be dug in The Hunter.

    • solarguy

      Old Gladie in NSW could be a stick in the mud though!

  • RobertO

    Hi All, The COALition NEG plan has the potential to cost 6000 to 8000 jobs over the next 2 years, all the investment plans on hold until a change of fed gov, and some of the 6000 will never return to RE in Australia. That is on top of the the prices rising by 20% annually for the next 4 years (RE from go day is about 18 months to 36 months for larger projects). There will be no relief for us unless the Fed Court decides to up the anti.

    • lin

      Here’s hoping Faithful Barnaby and his fellow clowns get the big A from the high court, rapidly followed by a general election.

      • solarguy

        Unfortunately a general election is not the likely result, but by-elections are. If Barmy looses or another Nat candidate looses, then the PM can call an election, but he would be loath to do that, for obvious reasons.

        • Joe

          Flush the Bananbee down the Murray Darling together with his worthless piece of paper that is The Murray Darling Basin Management Plan…oh wait, that flushing is a no goer…no environmental flows!

    • John Saint-Smith

      All the more reason to hang on to the dream of Adani’s fake 10,000 jobs!

      • RobertO

        Hi John Saint-Smith, my fiend Matty Canavan was on Channel 7 News a
        few weeks ago claiming 17,000 jobs. They get better and more reliable each time the speak (“S..T”)! COALition have lost any right to claim they are for jobs, and cheaper electricity prices. They are just so on the “NOSE!”

        • Joe

          ‘Italiano Matteo’ is putting ‘the multiplier effect’ into practice. Whatever Adani say is the jobs figure ( admitted to 1464 in Court ) then just ‘multiply’ that by the first double digit number that comes into your head.

          • RobertO

            Hi Joe, “but wait there more” comes to mind, the Adani web site claims “they want to automate from the mine to the port.” Matteo must have multiply the number by 100!

          • Joe

            With ‘Italiano Matteo’ the expression ‘… just stop digging’ comes readily to mind. to mind. Oh but wait, ‘Italiano Matteo’ wants to dig and dig as deep as possible…. for every last lump of Coal. Hopefully after The High Court decision tomorrow we can deport Italiano Matteo back to his home country…’Identity Fraud’ ( my description ) is not okay!

  • Barri Mundee

    Its the Networks which should be getting their value written down, not renewables.

  • Jo

    I am ever more impressed with Weatherill.

    • Guy Stewart

      Perhaps he can pull a reverse Xenophon and move on up to a senior federal cabinet position in a future leading party.

      • Joe

        Premier Jay is having so much fun in charge of Affairs in the good state of SA that it is hard to see the attraction for him in Federal Politk. The Xman is like a weather wane, goes in the direction of the wind. On Friday The High Court will inform us all of his real reason for quitting The Senate. Premier Jay should stay the course in SA.

  • Les Johnston

    We need complete transparency of assets “owned” by certain vested interests. A Federal ICAC with investigation powers is needed to disclose the reasons behind illogical and unethical decisions. The Energy Board Of “independents” needs to be the first investigated. Devaluation of renewable energy assets means there are financial risks being revalued. The NEG is political not an ounce of science.

  • Jeremy C

    It looks like the LNP has just re-elected Weatherill in SA.

  • neroden

    The corrupt NEG scheme is dead. It’s now clear the states will reject it.

  • MaxG

    Maybe the “Mad Max” scenery / scenario is where Australia will end up.

  • Rebecca

    Guess it’s not hard to understand why no LNP Politicians signed the ethical standards contract? An open transparent Government working for Australians against their political interest or DNA. The shame is it has become a habit a number of political parties are involved. Political Parties working for Australia & Australians I think not.

  • Richard

    It would be better if the states bypassed the commonwealth completely and come up with their own scheme . It would be relatively easy for the labor states to go it alone and offer good incentives to keep these big projects going under a combined state agreement.

  • Radbug

    Sounds like the Guillard government. Early in 2011, Tony Abbott got on top in the polls and stayed there. For two years, Guillard & Swan saw the writing on the wall. That’s why they didn’t care about the cost or consequences of the NBN or the NDIS, because, in the first couple of years, the cost would be low, and so, politically negligible. It was only after the certain 2013 loss that the costs would come in. So it is with Turnbull, I submit. He sees the writing on the wall. He doesn’t care about offering debt guarantees over Adani or an unmodelled NEG, because Bill Shorten will be the one who will have clean up the mess and endure the odium. With the assistance of the AWU smear job on Shorten, all Turnbull is focussed on now is saving the furniture.