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.
Indeed, 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.”