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Policy uncertainty drives renewable energy investors overseas

Australia is missing out on hundreds of billions of dollars in renewable energy markets as investors are driven offshore by the policy uncertainty of the Abbott government.

Clean energy and low-carbon investors are abandoning Australia as the new federal government, and its conservative colleagues at state level, turn their interests and policies away from renewables and long-term carbon abatement incentives.

Several key players in the clean energy finance industry have told the Senate hearings into the proposed Direct Action policy that investors are looking to Europe, the United States and some South American countries to find low-carbon opportunities. Nathan Fabian, head of the Investor Group on Climate Change, said:

My members are looking at the United Kingdom, Ireland, the United States, France and some South American countries as having more stable investment environments for low-carbon opportunities. Direct action is not an investment grade policy.”

He said investors viewed it more like a short-term grants scheme — and banks are likely to take a similar view — echoing the frustrations of many players in the clean energy industry who have been unable to obtain finance because of policy uncertainty. Fabian also said the proposed review of the Rewnewable Energy Target “appears to be another very clear signal that Australia will not be a market for low-carbon investing for the next few years”.

Tim Buckley, a former Citigroup chief analyst in Australia, clean energy funds manager, and now with the US-based Institute for Energy Economics and Financial Analysis, told the same hearing that the Australian clean energy industry was regressing because of the lack of clarity on policy:

We are worse than stalling; we are actually investing in assets that I think will become stranded as a result. Internationally, companies and economies are building industry capacity to transition for the long term. We should be building capacity as well and we are not doing so.”

He said Australia was missing out on hundreds of billions of dollars being invested every year in renewables, in energy efficiency and in development of these new technologies, and the hundreds of thousands of jobs being created in China, Germany and in America.

Numerous other parties have dismissed the proposed emissions reduction fund as “unfinanceable” — mostly because it offers a maximum five-year investment horizon. That reflects the view of most people — and possibly even the government — that Direct Action is not a long-term policy position, just part of a short-term political manoeuvre that has helped deliver power to the conservative parties.

Players in the renewables industry say the sector is facing its biggest crisis in a decade, when the last Coalition government brought a close to the then-mandatory RET, causing new manufacturing facilities to close, international groups to withdraw, and local developers such as Pacific Hydro and Roaring Forties to move the bulk of operations overseas.

The assessment by Fabian and Buckley is consistent with frustrations expressed privately by international investors, who have seen policies on hold, the price of renewable energy certificates fall by nearly half, the carbon price subject to repeal, and a proposed replacement that holds no interest for financiers.

One investor said recently there was a complete lack of liquidity in the market, because everyone was in “wait and watch” mode. Banks are not able to price the forward market, and the outlook looks poor.

It was ironic, one noted, because the market for conventional generation was effectively dead — because of falling demand and concern about longer-term carbon implications — but there was currently little to interest investors in clean technology, particularly new emerging technologies.

Without a central, long-term policy framework, there is significant uncertainty for investors in all assets …”

The ACT renewable energy auction program, part of its plan to seek 90% renewables by 2020, is the one exception. It has already unlocked 40 megawatts of utility scale solar PV projects, and will seek 550MW of other capacity, including wind and a 50MW solar park. But while welcome and of interest, it is relatively small-scale in a global or even a national context.

Buckley said Australia appeared to be working on the premise that the world was going to do nothing on climate change:

That is a flawed premise. We are investing tens of billions of dollars building new assets to promote fossil fuels, be it in LNG, coal, the Galilee in particular, Abbot Point port infrastructure. The investment is huge and I think it is going to end up leaving us with stranded assets because we are missing the point that China, India, America and Germany are moving full steam towards a low-carbon economy.

They are not going to need our fossil fuels in 20 or 30 years time, and we are building assets with 50-year lives. To build a coal port in the middle of the Great Barrier Reef with a 50-year life means we are effectively becoming a price taker for fossil fuels. Those assets will be stranded and we will see very, very significant write-downs on the back of them.”

Fabian said the scenario that Buckley cited could begin to “bite quite hard” within the next decade:

That compromises our investors, compromises the beneficiaries and workers and compromises the pensions that we guard. That is the essential policy risk that we are trying to address with a long-term framework.”

He said the carbon price, the RET, and institutions such as the Australian Renewable Energy Agency ARENA and the Clean Energy Finance Corporation played critical roles in assisting and building the capacity of the Australian financial community in low-carbon investing:

This is a strategic question for Australia in terms of what competency we are going to have in our financial markets. We need to move markets to places where they are not quite sure they should be yet because the policy signals are not clear enough. We know that cannot last.

Without a central, long-term policy framework, there is significant uncertainty for investors in all assets — emissions-intensive, emissions-reducing technologies and low-carbon activities alike. The consequence of this is that the cost of private capital for achieving emissions reductions would increase and the cost of achieving those reductions would also increase.”

Oliver Yates, the head of the CEFC, also appeared at the same hearing. Later, he told RenewEconomy that financiers weren’t committing time and effort to finance large-scale renewal energy projects on fixed terms. “Work that is being undertaken is premised on a reasonable outcome of the RET,” he said. “Beyond this, the market is effectively on hold, with most parties not prepared to enter into a firm contract and start construction pending the outcome of the RET review.

Many projects are seeking CEFC involvement to help secure other finance. Unless projects continue to be developed on the assumption that the RET review will not destroy the value of RECS [renewable energy certifications], even if they can’t be finally funded till after the review, there will be market disruption.”

*This article was originally published at RenewEconomy

19
  • 1
    Zeke
    Posted Tuesday, 11 March 2014 at 12:27 pm | Permalink

    Australia is open for business”

    As long as that business is coal mining.

  • 2
    Chris Hartwell
    Posted Tuesday, 11 March 2014 at 12:43 pm | Permalink

    tl;dr - insisting on Business As Usual is screwing up future economic prospects.

  • 3
    Duncan Symons
    Posted Tuesday, 11 March 2014 at 12:51 pm | Permalink

    These so-called “investors” in RE are in reality carpet-baggers trawling the world for governments willing to divert large sums from the productive part of the economy to subsidise the unprofitable parts like theirs. No-one is stopping them from setting up businesses selling wind or solar power at their own expense.
    As for fossil fuel investments possibly being stranded one day, that’s the risk you take with any long-term investment. A new technology may come along and eat your lunch. If you are a coal powered generator, solar power might become competitive one day. If you are a print publisher, someone might invent the internet. That’s business.

  • 4
    Mark Duffett
    Posted Tuesday, 11 March 2014 at 1:37 pm | Permalink

    …the hundreds of thousands of jobs being created in China, Germany and in America…

    Really?

    A month ago, “the German government announced that the (solar) sector only employed 4,800 people at the end of the year, compared to 10,200 at the beginning of the previous year. In 2012, jobs in the renewable energy sector stagnated in Germany, mainly because so many jobs were cut in the solar industry.”

    greenzone.co/2014/02/15/german-solar-market-50-drop-new-projects-subsidies-continue-decline-jobs-lost/

  • 5
    Hamis Hill
    Posted Tuesday, 11 March 2014 at 2:13 pm | Permalink

    So, their capacity for rational thought poisoned by conservative media bias against “planet worshipping greenies”, voters picked a losing government, and this losing government, in turn, picked a losing industry.
    Picking losers?
    Not good for long term investment, despite all the recent pre-election rhetoric.

  • 6
    Stuart Coyle
    Posted Tuesday, 11 March 2014 at 3:35 pm | Permalink

    Lets invest our money in what worked in the past, not what is going to work in the future. This is exactly the problem with the conservate mindset. In a world that now has technology moving faster that our aged politicians can understand they are destined to be a drag on the country advancing.

    Understand this, the internet is the future, real broadband. Renewable energy is the future. One invests for future reward not in the past. They seem to suffer from the sunk-cost fallacy at every turn.

  • 7
    tonyfunnywalker
    Posted Tuesday, 11 March 2014 at 4:06 pm | Permalink

    Abbott pre the election said we will bring stability and certainty so that business can invest with confidence. Like so much else - hollow words from a hollow man and we like the fools that we are believed him.

  • 8
    Ken Dally
    Posted Tuesday, 11 March 2014 at 4:07 pm | Permalink

    Abbott and the LNP are Stuck in a 20th century or earlier mindset and are actively chasing away the really big long term investment opportunities depriving the nation of money, people of jobs, and a place as a global leader in the 21st century and beyond.

  • 9
    Scott
    Posted Tuesday, 11 March 2014 at 4:23 pm | Permalink

    Check out the ACT Clean Technology Index VS ASX200 returns over the last 7 years

    2007 2008 2009 2010 2011 2012 2013
    ACT Clean Tech 42.9% -16% -38.7% -32% -8.1% -30.3% -3.5%
    ASX200 25.4% -16.4% -25.8% 11.8% 4.2% -9.6% 17.3%

    If you invested in renewables over the last 7 years, you would be heavily underwater. Australian renewables are full of underperforming companies with rubbish management. That is the reason why no one wants to invest in Australian Green/sustainable industries.

    And if you are talking policy, remember, this has happened on Labor’s watch.

  • 10
    AR
    Posted Tuesday, 11 March 2014 at 5:36 pm | Permalink

    Direct action is not an investment grade policy. & a short-term political manoeuvre …waayyy too kind. it ain’t nuttin of anything except a brain fart from a focus group of swinging voters with their collective double digit IQ.

  • 11
    graybul
    Posted Tuesday, 11 March 2014 at 6:30 pm | Permalink

    . . Right on the money Stuart C. Sabotaging high speed fibre to home NBN signalled Australia as being in lock-step with PAST achievements. Whatever our future . . demands best available Broadband. Renewable Energy equally essential. Investing in an expanded Coal infrastructure . . will prove to be an unrecoverable investment within a decade. The foundations are being laid for Australia to become a ‘loser’ nation where once we led or at least was at forefront. Remember Nicholas Stern’s message . . ‘pay now, for tomorrow it will cost considerably more’.

  • 12
    Tony Nedderman
    Posted Tuesday, 11 March 2014 at 8:26 pm | Permalink

    Don’t think anyone will be looking at the U.K., see Mail article:

    http://www.dailymail.co.uk/news/article-2510936/Cut-green-c-p-Camerons-private-view-energy-taxation-horrify-environmental-campaigners.html

  • 13
    R. Ambrose Raven
    Posted Tuesday, 11 March 2014 at 10:37 pm | Permalink

    Once again we see the need for government development stimulators – despite the ideological hostility of the profit-seekers and Right ideologues. We also need renewable energy; it is as simple as that.

    CEFC chair Jillian Broadbent told a Senate hearing in Nov ’13 that the fund had to then invested $500 million. Being allowed to invest the full $10 billion would achieve over half the emissions abatement required for the bipartisan 2020 target, while at the same time returning a dividend of $200 million per year.

    He rejected the ideological obsession of a Treasury official that the CEFC crowds out private investment and takes risk with public money. “In fact, there’s been a crowding in, where we’ve had three international institutions who’ve participated in the market for the first time, encouraged by the fact that there was a government-owned entity there at the table and being a co-financier.”

    In contrast to the massive cost of the Noalition’s Direct Action, and its ineffectiveness, CEFC is an earner - every emission saving returns the government $2.40 per unit, indeed it has to be consistent with CEFC’s current portfolio. CEFC’s annual report for the last financial year says every dollar of investment has attracted $2.90 in private sector spending.

    “If you invested in renewables over the last 7 years, you would be heavily underwater.” Presumably marginal and undercapitalised companies – which is why CEFC was established.

  • 14
    R. Ambrose Raven
    Posted Tuesday, 11 March 2014 at 10:42 pm | Permalink

    Anyway, since “we’ve” stopped the boats arriving, why does it matter whether we are drowned, frozen or cooked by climate change? “Stopping the boats” is what really matters isn’t it? Abbott et al only had three “policy” platforms.

  • 15
    Geoff Russell
    Posted Tuesday, 11 March 2014 at 10:57 pm | Permalink

    Did anybody bother to fact check this article? Clearly as Mark Duffett has already pointed out, any implication that the German renewable revolution is proceeding well is simply false.

    This is further born out by the IEA data on Germany’s 2013 renewable electricity output: http://bit.ly/1ky28cp

    Comparing Jan-Nov (because Dec figures aren’t out yet)

    2012 … “Geothermal/Other” (inc. Wind+Solar) 69.9 TWh
    2013 … “Geothermal/Other” (inc. Wind+Solar) 68.6 TWh

    This was entirely predictable, the issue was not if it would happen but when. The intrinsic intermittency problems of wind+solar are serious. Experts differ in when they start to bite hard, but it’s clear they are biting now.

    In contrast, during the 1970s, people in more than a few countries just rolled out nuclear and it worked. No special grids, no storage, and the build rate was about 5 times faster than even Germany has managed.

    James Hansen has just written a scathing attack on the pseudo-science of 100% renewable advocates. The title is telling: “World’s Greatest Crime against Humanity and Nature”. The 100% renewable crusade has been a catastrophe … basically it has helped coal and all the unconventional oil resources (+gas fracking) to thrive: http://bit.ly/1cQtdS5

    Will Crikey run Hansen’s article in full? Of course not. That would contradict your ideological anti-nuclear position.

  • 16
    Penelope Milstein
    Posted Tuesday, 11 March 2014 at 11:23 pm | Permalink

    It beggars believe that this is happening in our country- particularly with all the renewable resources we have. First renewable energy investors and next a brain drain to overseas countries where progressive politics mean adequate funding and support for ideas that will bring future prosperity and climate safety. Already an international embarrassment, the legacy of the Abbott government will be the ire of future generations left behind by the energy market shift happening now, world wide.

  • 17
    Liamj
    Posted Wednesday, 12 March 2014 at 2:37 am | Permalink

    Tony is really a Chinese spy, he’s doing an excellent job of regressing the economy to facilitate the resources sellout sale. Same reason we bombed Vietnam & Iraq back to the middle ages, so they (now we) have no choice but to export raw resources cheap, it’s all we know how/are allowed to do.

  • 18
    @chrispydog
    Posted Wednesday, 12 March 2014 at 10:19 am | Permalink

    Both Geoff Russell and Mark Duffett have belled the cat, or perhaps a better metaphor: pointed out how green around the gills the ‘green canary’ Germany really is.

    No one has said it better than the report handed to the German government recently, which examined the whole renewables subsidy scheme and concluded that it’s “fundamentally flawed”.

    Germany promptly announced it was cutting back on the massive transfer of taxpayer’s funds to renewables. Shortly after that so did Britain.

    Meanwhile Scott Ludlam, the green messiah, promotes the most hideously expensive solar thermal technology which would bankrupt any country trying to build anything more than some toy plants. He also takes every opportunity to run his anti-nuclear myths. What qualifies this ex-graphic designer to call James Hansen’s arguments wrong?

    The old cold war anti-nuke brigade is the ageing core of the Green’s position on nuclear power, armed with fallacies and fear mongering, this group is gradually diminishing and the Greens will either have to shift its message to a younger, better educated audience, or become an irrelevancy to the existential issue of climate change.

    Mr Ludlam is on the wrong side of history, and Mr Hansen is absolutely on the other.

    The green cult has a big problem: reality bats last.

  • 19
    Tyger Tyger
    Posted Tuesday, 18 March 2014 at 12:18 am | Permalink

    Geoff Russell @15, you’re being disingenuous in saying of Hansen’s paper, ‘The title is telling: “World’s Greatest Crime against Humanity and Nature”’. The crime to which Hansen is referring is AGW, not the actions of the 100% renewables lobby, although he does indeed argue that switching to 100% renewables is as yet unrealistic and is an advocate for state-of-the-art nuclear power generation.
    It’s also important to separate two quite different questions when discussing the German “Energiewende” program: Should we be investing more in renewables? And what place, if any, should nuclear power have in the energy mix? The answer to the former is a resounding yes, whereas the latter is problematic, even if only politically.
    Energiewende has led to a significant increase in the percentage of power derived from renewable sources (which fact is evident if you consider the program since its inception rather than cherry-picking figures from just two years) as well as a significant decrease in per capita emissions. However, if the phasing out of nuclear power stations continues, base load power will have to be derived from other, typically fossil-fuel burning sources. (Which wouldn’t be an issue in Australia were we to adopt a similar program as we have no nuclear power stations. As to whether we should, I have an open mind and, in the circumstances, would probably support their introduction if the claims made for the latest, cleaner and safer technology can be met. I’m not sure we have much choice.)
    For those who would like to consider both sides re “Energiewende”, the following link features a debate between an opponent and a proponent of the scheme:

    http://www.dissentmagazine.org/article/green-energy-bust-in-germany

    What can’t be denied is, unlike us, the Germans are at least attempting serious reform and have been for some time. It’s not perfect, but is far better than both our limp-wristed, about to be phased out carbon tax and Abbott’s non-policy. Also, there is currently debate in Germany about how best to proceed with the program and what reforms might be needed to improve it.
    In that sense the main thrust of this article is correct: if, as I am, you’re interested in investing in renewables, you’d be mad to do so in this country.

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