Energy industry warns of blackout

Australian
Tuesday 14/4/2009 Page: 1

CONSUMERS face possible blackouts and power stations could go broke unless the Rudd Government offers an extra $6 billion worth of free permits under its planned emissions trading scheme, the energy sector has warned. If the extra assistance is not forthcoming, the sector, responsible for about 70% of Australia's carbon emissions, will ask the Government for a Rudd Bank-style financing facility to help raise the capital.

A survey by the Energy Supply Association of Australia has found the sector will need to find $100 billion over the next five years for refinancing, essential upgrades and new investments in low-emission generation to comply with the emissions trading scheme and new renewable energy targets.

The industry says it is facing a "perfect storm" of a credit squeeze caused by the financial crisis and the Rudd Government's bank guarantee, inadequate compensation under the carbon pollution reduction scheme, and a decision by the Australian Energy Regulator that could reduce the profitability of energy network providers.

The Government has offered the electricity industry $3.9 billion in free pollution permits to compensate for the "most probable and most extreme" write downs in power station asset values because of the carbon pollution reduction scheme an acknowledgement that the scheme will cause upheaval in the sector as it shuts down some high-polluting power plants early and invests in new low polluting generation.

The ESAA said this amount must be increased to at least $10 billion, to be delivered over the first five years of the scheme. If the Government does not increase the level of compensation, we will be have no choice but to go to them asking for another finance facility for our sector," association chief executive Clare Savage said.

"What is at stake here is the future of the energy market. If nothing is done, power stations are likely to be bankrupted, and if they closed, then there would be problems with electricity supply, or more likely governments would have to step in to take them over, and that would unravel the last 10 years' hard work to set up a national electricity market."

An ESAA survey found the energy sector would need to find $50 billion for refinancing over the next five years, $6.3 billion for planned spending on existing assets, $12 billion for new lower emission generation and $31 billion for investments in the electricity networks. The sector needs to fight for access to that capital in a market where banks and state governments have received federal government guarantees and where the carbon pollution reduction scheme means asset values are being written down.

The $40 billion energy distribution industry is facing a large reduction in its returns if the Australian Energy Regulator confirms a recent draft decision at the same time as it is being asked to fund billions of dollars in new network investments as the industry shifts to new types of generation.

According to the Energy Networks Australia, the draft decision would reduce returns to the industry by more than 10 % . "When you combine the effects of these decisions with the debt guarantees being offered to other sectors, it is tantamount to tying one hand behind the industry's back while it fights for capital in the midst of a global financial crisis," Ms Savage said.

To help ensure these assets remain in service to support the transition to lower-emission technologies and give new investors in the energy supply sector confidence that when the Government institutes major policy change that has the potential to strand long-lived infrastructure assets, the value of these assets must be adequately recognised."

The Government says the revenue it will raise from auctioning permits under the carbon pollution reduction scheme is already fully allocated in compensation to industry and households, meaning any increase in compensation to one sector would require taking something away from another.