Regulators a threat to target

Australian
Monday 15/12/2008 Page: 4

THE Rudd Government's renewable energy target has been put at risk by a failure of regulators to recognise the costs of getting green power to markets, energy networks have warned. Yesterday, Kevin Rudd announced that a $500 million renewable energy fund to spur on the development of clean power plants would now be spent over 18 months rather than six years from 2009.

But Energy Networks Australia says electricity distributors already face challenges renewing aging infrastructure thanks to the global financial crisis, let alone building new networks to deliver clean energy sources. Charges for energy network and transmission businesses are controlled by the Australian Energy Regulator. One of the major factors in setting these charges are the returns allowed for on about $60 billion of existing electricity poles and wire and gas pipelines, or what is termed the cost of capital.

ENA chief executive Andrew Blyth says proposed costs of capital parameters are out of touch with the reality of global credit markets. "Energy networks have a direct role in carbon reduction policies," Mr Blyth told The Australian, "yet the regulator's draft decision proposes reducing investment incentives by over $350 million per annum at a time when energy businesses face the largest disruption to international capital markets for decades.

"In the midst of a world financial crisis the regulator is saying energy companies face less risks and will find it cheaper to attract credit than in the past. "As any business operator would know, the proposition simply wouldn't pass a pub test of common sense." Mr Blyth said the reduced incentives could make the Government's 20% renewable energy target harder to achieve. "Most windfarms are located in areas where people don't live because of the wind. You need to put networks in place to transport the energy across long distances.

"The lowered incentives to build or reinvest in infrastructure will mean new renewable projects may not be viable as they will not be able to deliver their energy to markets. "The proposal takes away the money companies need to get this infrastructure in place." Mr Blyth warned that the regulator's decision ignored state government concerns about refinancing large debts in the current environment. "There is simply too much at stake to sit idle and accept a regulatory decision which is out of touch with the reality of global credit markets." The regulator will make a final determination on the matter in March.