Infigen facing “difficult decisions” if RET instability remains

Mike Hutchinson, the chairman of Infigen Energy, Australia’s largest listed renewable energy company, has launched an extraordiarny attack on the Abbott’s government’s position on renewables, describing any changes to the legislated renewable energy target as “indefensible”.

Hutchinson, writing in the company’s annual report, lamented the “political demonising” of renewable energy. This, and the demonising of investors “who put their trust in legislated backing” for the renewable energy target was indefensible.

“Policy should be based on science, sound analysis, prudent precaution, long-term consideration, and proven economics, rather than on anecdotes, wishful thinking, prejudice, blind faith, selective reporting and simple denialism,” he writes in the company’s annual report.

Hutchinson warned that renewable energy had become politically divisive along partisan and ideological lines. And if the RET was to be cut or stopped, or if uncertainty remained “difficult decisions may need to be made in the interests of the group, our security holders and lenders”.

Managing director Miles George has previously warned that the company faces “dramatic” decision to protect its shareholder funds if uncertainty continues, and the price of renewable energy certificates continues to wallow. This comes as the Abbott government seeks support from the Labor Party for as yet unspecified changes to the RET.

Hutchinson noted that the Government appointed Warburton panel review of the RET has recommended either closure of the Large-scale Renewable Energy Target (LRET) scheme or its material reduction. “Either outcome would have seriously adverse implications for Infigen’s business,” he writes.

“Either would realise material sovereign risk, not merely regulatory risk as the Review attempts to incorrectly characterise it.

“By materially changing the legislated incentive for investment after the investment has been made, the value of that investment will be destroyed. At the time of writing, the Government’s response to the report was unknown, although it appeared that there could be Parliamentary obstacles to enacting legislation in line with the report’s recommendations.

Hutchinson said that Infigen Enrgy had long argues that  any bona fide review would reach a conclusion that the LRET scheme in its current form provides greater benefits to households and businesses than a reduced target scheme.

“Research commissioned by the Review reached that conclusion. The recommendation to end the scheme is starkly at odds with that finding. In fact, the Panel’s report highlights that the two options that it has recommended will be the most costly for commercial, industrial and residential consumers.”

“Science, facts and objectivity are too often casualties in a debate where some participants feel free to choose selective, or unfounded, data. The political demonising of the Renewable Energy Target, and of investors who put their trust in the legislated backing for that target, is indefensible. The sovereign risk that would be realised by an adverse rule change after investment has been committed would reflect badly on Australia.”

Hutchinson said that in these circumstances, the company will contain the cost of sustaining its Australian pipeline of projects to the “absolute minimum” pending resolution of current regulatory uncertainty.

In the US, in contrast, there has been stable and predictable State based renewable energy programs and Federal renewable energy incentives, combined with more efficient planning laws. “Our experience in the US has allowed us to invest in our development pipeline in the confidence that should the regulatory environment change, our investments will be grandfathered.”