New Projects Slow To Get Started

Australian
Monday 19/4/2010 Page: 26

AUSTRALIA'S environmental markets may well have surged in recent months, but this is yet to translate into m any of the new projects they are designed to finance. The price of renewable energy certificates has jumped to a recent high of $48, and closed last week around $46, nearly 60% above the lows reached last year as RECs from solar hot water heaters flooded the market. The price has recovered after the federal government flagged changes to the renewable energy target (RET), fixing the price of RECs for small-scale installations, but keeping them separate from the main market for utility-scale projects.

But developers are still unwilling to commit themselves to projects until the final legislation is seen and passed, and analysts are now concerned that the legislation may be held up by a packed budget session, the healthcare package, possible Henry tax review legislation, and the election. The upshot might be that the government has precious little to show for its efforts in renewable technology by the time the next election comes around.

Almost all the developments announced in the past two years have been driven by state-based desalination plants. Deutsche Bank noted last week that only two the 206 MW Collgar wind farm and the 27MW Racecourse Mill bagasse co-generation plant had reached financial close this year thanks to the RET.

Wind farm developers, particularly those independent of the major electricity retailers, will rely on high REC prices to generate a suitable return for capital invested, particularly in the absence of a carbon price. However, it was interesting to see industry fund REST and UBS Asset Management buy Collgar before it was even built. The investment is the first in the renewable sector for either firm.

There is still a big surplus of RECs but the price is being supported by the fact that in the long term, there may not be enough developments built to meet demand, a situation that would force energy retailers to pay a non-deductable penalty price of $ 65, effectively putting a relatively high floor price on the certificates. Analysts say there is also a perception that having intervened once to rescue a flailing REC price, the government would be prepared to do so again.