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Mar 11, 2014

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

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19 comments

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19 thoughts on “Policy uncertainty drives renewable energy investors overseas

  1. Zeke

    “Australia is open for business”

    As long as that business is coal mining.

  2. Chris Hartwell

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

  3. Duncan Symons

    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

    …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

    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

    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

    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

    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

    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

    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.

Telling you what the others don't. FREE for 21 days.

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