SYDNEY: Australia's electricity sector faces a A$22 billion (A$1 = RM2.98) headache as it seeks to refinance debt over the next two years, with uncertainty over efforts to put a price on carbon pollution hurting investment, ratings agency Fitch said yesterday.
About 80 per cent of the Australia's power comes from burning coal, a major source of planet-warming carbon dioxide pollution and for decades and cheap and easy source of fuel for Australia.
The government's failure to win support for a comprehensive emissions trading scheme has raised questions about value of many power generation assets and the future costs operators will face.
While it is widely accepted some form of carbon pricing will be enforced, questions remain on the timing and final shape of such laws, particularly compensation for polluting generators.
The government's carbon pollution reduction scheme (CPRS) laws were introduced to parliament yesterday for the third time but look set to be rejected again in a hostile Senate, where the government doesn't have a majority, in coming days.
Fitch said coal-fired power stations, which needed to refinance debt as well as invest in more environmentally friendly capacity, were most under threat.
"It may be once the details of the CPRS become known, providers of capital will become more comfortable," said Steve Durose, head of Fitch's Asia-Pacific Energy & Utilities team, said.
"They want to be able to make decisions but the main problem at present is uncertainty," he said.
Durose and colleague Sajal Kishore, in a report looking at the 2010 outlook for the Australian power and utilities sector, said the credit outlook was broadly stable.
But they said credit risk factors included high capital expenditure requirements, significant changes to the generation fuel mix and the higher costs of new capacity following the introduction of renewable energy target legislation.
"It is the CPRS which has the greatest potential to change Australia's generation sector to a greener, but more expensive, capacity mix," the report said.
The report added that the scheme would harm the credit quality of carbon-intensive generators, particularly those in southern Victoria state fired by CO2-rich brown coal.
Under the CPRS, the government is proposing a one-year fixed carbon price of A$10 per tonne from mid-2011. Full auctioning and trading of permits would start from 2012. The government estimates a carbon price of A$26 a tonne in 2012 to 2013.
The scheme would cover 1,000 of Australia's biggest polluters to buy permits for every tonne of CO2 produced, covering about 75 per cent of national emissions.
Energy Supply Association of Australia chief executive Brad Page said the power sector had a significant financing task ahead if it was to successfully move to low-emission generation.
"A survey of the energy supply industry last year showed that US$100 billion (US$1 = RM3.44) would be required in the years to 2014, with around US$50 billion just to refinance existing energy assets," Page said in an email to Reuters.
Australia's parliament has passed laws mandating a target of generating 20 per cent of its energy from renewable sources by 2020, in a scheme that is designed to complement the CPRS.
"In the generation sector we are seeing an anticipated increase in renewable generation and we would expect that investment to be funded by a usual mix of debt and equity," Durose said.
One of Australia's dirtiest power stations, the 1,675 megawatt brown-coal Hazelwood plant in Victoria, owned by British company International Power, refinanced A$742 million of debt last week.
"It may be that the banks were too scared to do anything else because the alternative for the banks would have been that Hazelwood would have been unlikely to find that capital from somewhere outside its own banking group unless International Power put in even more equity," said Durose.
An electricity trader said that with the government offering compensation of US$7.3 billion, generators were still likely to refinance debt and borrow to build renewable generating assets.
"The banks will stick with the generators like Nike will stick with Tiger Woods," the trader said. - Reuters
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