AGL retreats on threat to scrap wind farm

Age
Tuesday 2/3/2010 Page: 4

AGL Energy has backed down from a threat to scrap its $800 million Macarthur windfarm, the largest in the southern hemisphere, after the federal government proposed to change its troubled Renewable Energy Target.

The utility yesterday signalled it expected to build the Victorian windfarm after entering into "conditional arrangements" with New Zealand's Meridian Energy. The move contrasts with a previous threat from managing director Michael Fraser to put wind investment on hold because of a slump in the price of renewable energy certificates (RECs).

On Friday, Climate Change Minister Penny Wong unveiled plans to lift REC prices after heated lobbying fro in renewable energy investors. AGL Energy's board has yet to approve the 365-MW wind farms, but the changes have strengthened the investment case for AGL Energy's large wind project pipeline. Equity analysts said the higher REC prices should also strengthen AGL Energy's hand in discussions with credit ratings agencies. But some in the market are wary of AGL Energy's earnings from windfarm development fees, which it extracts through complex sale and lease-back deals.

Since the Friday announcement, REC prices are up 18% to $42. However, traders in the illiquid market say they are awaiting clarity on the government's policy and Senate approval of the proposed RET legislation. A credit analyst at Fitch Ratings, Sajal Kishore, said the industry expected REC prices to lift above $50 in coming months, seen as the minimum price to underwrite wind developments.