Carbon scheme doubts hit power stations

Age
Friday 18/9/2009 Page: 1

VICTORIA'S power supply is being threatened by difficulties coal-fired generators are having in refinancing debt, due to uncertainty caused by the prospect of an emissions trading scheme. Credit ratings agency Standard & Poor's has downgraded its outlook for LoyVic, the financing arm of Latrobe Valley power station Loy Yang B, which supplies 17% of the state's electricity. It has also downgraded IPM Australia, LoyVic's trading arm.

"The change in the outlook reflects our view of the potential adverse implications that any carbon-related costs under the Australian Government's proposed carbon pollution reduction scheme may have on LoyVic's credit profile from July 2011 and refinancing of LoyVic's $1.1 billion debt due in June 2012," S&P said.

Hazelwood and Loy Yang A face similar problems in refinancing debt next year. Another vote on emissions trading is due in November, with the Government needing support from other parties to get the bill through the Senate. S&P credit analyst Parvathy Iyer said she did not think the pressure on coal-fired generators would result in them falling over in the short term but that it could speed a switch to other fuel sources.

"It does question the viability of these power stations, but that doesn't mean the companies will shut down," she said. "These entities have a bucketload of debt. We don't expect those assets to be around in 20 years or 30 years. "The terms and conditions, pricing, and the term of the new debt will also have a significant bearing on LoyVic's future financial position. "Even if significant passthrough of carbon costs were achieved, the project's high leverage in our view may constrain its ability to withstand any significant increase in debt margins and/or a shorter amortisation debt profile," she said.