Infigen Energy, Australia’s largest listed renewable energy company, has warned of significant asset writedowns across the $20 billion industry if uncertainty about the future of the industry was to continue.
The company said those “significant asset impairments” would also be suffered by Infigen Energy itself, and warned of pressure on its ability to meet the financial covenants in its borrowing facilities.
The warning from Infigen Energy is the most dramatic since the Abbott government insisted on appointing its own panel of climate skeptics, pro nuclear advocates and fossil fuel lobbyists to assess the future of renewable energy policy in Australia.
The uncertainty caused by the review has brought investment in large-scale renewables to a halt and has caused the price of large-scale certificates (LGCs) to plunge.
This – along with falls in the wholesale price following the removal of the carbon price – meant that new investments could not be made, and current investments were also under pressure.
“LGC prices are currently significantly below those required to sustain existing investment or encourage new investment,” Infigen Energy said in a statement accompanying its results.
“If this were to continue it would likely lead to significant asset impairments across the industry, including for Infigen Energy. Continuing depressed prices would also create significant pressure on Infigen’s capacity to meet financial covenants in our borrowing facilities.
Infigen Energy reported a net loss of $8.9 million after tax, although its result was a profit of $7.9 million if significant items were not included.
It said this represented a $71.1 million improvement in underlying earnings over the past year, notwithstanding the weakening market conditions in Australia.
Infigen Energy managing director Miles George said the only bright spots in the Australian market were the renewable energy schemes proposed by regional governments, such as the ACT, where the company is hoping to gain a contract to expand its Capital wind farm (pictured above – the turbines that Treasurer Joe Hockey finds utterly offensive).
Infigen Energy will bid into the ACT government’s upcoming wind auction, which will provide firm contracts for around 200MW of wind energy capacity in the region to help meet the ACT’s goal of 90 per cent renewable energy supply by 2020.
There is also growing speculation, or at least hope, that the looming defeat of the conservative Napthine government in Victoria could lead to that state implementing its own renewable target, much like it did nearly a decade ago when the then and current energy minister, Ian Macfarlane, brought the then mandatory renewable energy target to a shuddering halt.
However, while the ACT is increasing its ambition, the Australian government is set to roll back the national 41,000GWh target. It will close it new entrants, make it a “true” 20 per cent target, meaning a cap of 25,000GWh to 27,000GWh, or possibly allow gas into the scheme.
George has previously labelled proposed changes to the RET as “economic vandalism, pandering to the climate sceptic minority.”
The other bright spot was the market for solar projects in the US. Infigen Energy made a profit of $4.3 million from the sale of two solar projects in California last year, and is pursuing similar deals.
George said in a company statement: “The ongoing regulatory uncertainty in Australia had an adverse effect on the financial performance of the business, however, more favourable wind conditions, good availability and careful management of operating and overhead costs resulted in a steady EBITDA outcome.”
“In the US, a steady and supportive regulatory regime assisted in delivering a solid operating result and provided the investment confidence to seize opportunities to profitably exploit our development pipeline, including the sale of two solar development projects during the year.”
On the immediate future, George said:
“In FY15, Infigen will continue to pursue certain growth opportunities. In the US, the development team will continue to advance the solar development pipeline including new projects in California and New York. In Australia, the development team will continue to explore opportunities that are supported by State and Territory Government initiatives.
“The outlook for Infigen’s Australian business is currently highly uncertain. This is primarily attributable to regulatory instability caused by the latest RET review and associated industry and political positioning and commentary.
“The current review commenced just 14 months after the last review was concluded. The review Panel’s report is expected to be released imminently. Recent media reports indicate that the Australian Government may be considering significant adverse changes to annual targets, subject to enactment of necessary legislation.
“Significant reductions to the annual targets would have a material adverse effect on the Australian renewable energy industry, including Infigen, unless appropriate grandfathering or other effective arrangements were implemented to reflect the fact that existing investments were made in good faith in pursuit of explicit Commonwealth objectives and legislation.”