ETS delay hits green investment - Super fund billions will `melt away'

Age
Saturday 1/5/2010 Page: 3

BILLIONS of dollars worth of green energy investment will melt away because of the delay in introducing emissions trading, as super fund managers put their assets elsewhere, they say. Super funds, key backers of long-term projects such as wind farms, will be more reluctant to back renewable energy projects after the announcement this week of a delay in introducing an emissions trading scheme, the Australian Council of Super Investors said.

By delaying a scheme until at least 2012, the government is hampering the business case for renewable energy projects, Michael O'Sullivan, ASCI president, said. "Super funds have been investing in renewable energy for many years," Mr O'Sullivan said. "There is a strong appetite for increased investment, particularly in Australia. "But investors are likely to consider other investment avenues unless the uncertainty around carbon prices can be resolved."

The ASCI represents not-for-profit super funds, with $250 billion in funds under management. Its claim contrasts with other industry opinion that renewable energy investment is safe because of the government's renewable energy target, which requires 20% of the country's power to come from renewable energy sources by 2020. Driven by the RET, Fitch Ratings estimates that $30 billion will be required for renewable energy generation until 2030.

But the super funds say the lack of a carbon price also removes risks from rival investments, making their look more attractive in comparison. For example, funds often weigh up investments in renewable energy against infrastructure projects such as toll roads or airports. While a carbon price might have made these infrastructure assets less attractive, the delay could work in the opposite direction.

Industry sources say banks have tightened their lending criteria for renewable energy projects because they had previously factored in the higher electricity prices expected with a carbon scheme. Executive director of the Australia Institute, Richard Denniss, said the delay might have a slight impact on renewable energy, but the RET remained a strong incentive for new investment. "To the extent that the carbon pollution reduction scheme would have slightly increased the price of electricity, then the comparative advantage of renewables is slightly diminished."