Coal-fired stations too risky, says AGL

Sydney Morning Herald
Thursday 21/8/2008 Page: 4

ONE OF the country's largest electricity suppliers has said buying the state's coal-fired stations ranks as a low priority because of the financial risks of carbon emissions trading. The managing director of AGL Energy, Michael Fraser, said the company was unlikely to buy the NSW generation assets because their carbon emissions will cost the future operator. This made them an uncertain and vulnerable investment. "At the moment it's extremely difficult to work out how you would put a value on [the generation assets], it's not a preference for the company," he said.

The comments come as the NSW Auditor-General, Peter Achterstraat, is due to present a report today on the sale process of the electricity assets. The Premier, Morris Iemma, has said he will review the privatisation plans if the report is critical of them. AGL had previously said it was considering its involvement in the privatisation as it rearranged its finances. The involvement of several other potential bidders in the sale is also under a cloud, which could drive down the price the assets fetch at auction.

Babcock and Brown Power has financial woes and is no longer a contender. Origin Energy, once considered a front runner, is defending a takeover bid from the British company BG, which restricts its involvement. An energy analyst at UBS, David Leitch, said: "Why would AGL buy a bunch of coal-fired generators in NSW if they are going to have a carbon liability that just goes up and up?" Mr Leitch said the assets would ultimately find buyers, but their value had gone down since the move towards carbon trading.

Mr Fraser said contracts to supply the plant's coal were due to expire in the next few years, and this would raise costs further for a potential buyer. Coal prices would probably rise sharply in the renegotiations in line with booming export price for coal. AGL is interested the NSW assets' retail side, which includes EnergyAustralia - estimated to be worth about $1.9 billion. But it could face a battle gaining the competition regulator's approval.