BNEF: RET changes to cause bankruptcies, kill industry for decade

Leading analysts Bloomberg New Energy Finance predict that the market for large scale renewable energy in Australia will be effectively destroyed by any scaling back of the renewable energy target, leading to bankruptcies in the sector.

BNEF warns that the impact could be broad. “A whole host of Australian and foreign companies and lenders could be exposed to asset impairments, and almost all will suffer significant write-downs in the mark-to-market value of their investments,” it says in a new report.

The analysis was published ahead of the release of the findings of the RET Review panel, and on the assumption that the target will be closed to new entrants, or severely scaled back.

BNEF’s concludes that the market for large-scale generation certificates (LGCs) will be destroyed and have a “fundamental value of zero” – because they will no longer be a scarce commodity. (There is already a large surplus in the market).

The closure to new entrants is the favoured scenario of Prime Minister Tony Abbott and his inner circle of advisors, as well as Industry Minister Ian Macfarlane, who closed the Howard government’s MRET scheme to new entrants a decade ago – despite an independent report that advised expansion of the scheme.

Environment Minister Greg Hunt is said to favour a scaling back of the target to a “real” 20 per cent, but is likely to be over-ruled. Clean energy companies says the outcome of either scenario is more or less the same – the destruction of the industry in Australia – as both Infigen Energy and Pacific Hydro have made clear.

BNEF’s analysis says that with LGC’s effectively valued at zero, renewable energy operators will be relying only on wholesale electricity prices, effectively at record lows.

“Equity investors will be quickly wiped out and projects will likely default on debt payments. Bankruptcies of renewable developers could then be expected, and exposed renewable energy assets will probably be stranded,” it says in a report.

In particular, wind projects that run on a merchant basis, rather than a power purchase agreement, are most exposed.

BNEF notes that any changes are unlikely to be legislated, given the support of the current scheme from Labor, the Greens and the Palmer United Party (at least until 2016 for the latter).

“Nonetheless, under such a scenario, investment in large-scale renewable energy assets would cease in Australia until at least 2020 and likely until around 2025, when new electricity supply is projected to be needed.”

BNEF says the charts below show the top 20 equity investors and debt providers in renewable energy assets in Australia. Many of these companies could be exposed to losses if assets are stranded by a change in government policy, it says.