Australia finally breaks green deadlock


May 29, 2015

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No doubt you are aware that Australia has been turning away from green energy under the leadership of prime minister Tony Abbott.

In fact, this month the coalition government has finally broken the deadlock on the future of the countrys Renewable Energy Target. The Liberal Party and Labor have cut the target of power from renewables in 2020 by 20%, from 41,000GWh to 33,000GWh.

This is clearly bad for investors in large renewables developments, including wind farms, as it reduces by one-third — to 5,500MW — the capacity of such projects that are set to be built by 2020. The only good aspect is that investors now have clarity on policy.

If we want to get an idea of the pain facing major renewables we should look at a case study: the two-year strategy announced by AGL Energy this week.

On the face of it the strategy looks pretty pro-renewables. AGL has committed to a series of non-core asset sales, totalling $1bn (€700m), to raise funds to invest in rooftop solar, battery storage and smart metering. It has also committed to moving away from coal-fired power generation by 2050. It’s a long-term move but in most cases would still be positive.

When you know about AGL, though, all of this is less impressive.

The investment in emerging green technology is good, but the company is also planning to sell its 50% stake in Australia’s largest wind farm, the 420MW Macarthur project, in a deal that could net it around A$500m (€350m). This tells us that AGL sees a brighter future in small-scale renewables than it does in the large projects that appeal to major investors.

Its backing for small-scale renewables is also a tiny step towards green energy, compared to the giant leap it has made towards black energy, mainly coal, in the last year. In August 2014 the company bought 4.6GW of coal-fired power stations in New South Wales, which followed its purchase in 2012 of the 2.2GW Loy Yang A brown coal scheme in Victoria.

AGL has slipped from its position as the greenest of Australia’s large utilities to becoming a huge emitter of greenhouse gases. Its new strategy is only a tiny step back towards green.

And let us not forget that AGL was one of the major utilities — along with EnergyAustralia and Origin Energy — that have been called for a RET to be either scaled back or scrapped altogether; and have backed the government’s earlier removal of a fixed carbon price. We should not laud a company that has been so key in these damaging policy shifts.

Investors in Australian renewables will rightly welcome the fact that they have certainty on RET and can re-start business planning. These changes are likely to force some of them to be innovative and get involved in emerging parts of the market such as storage.

But investors should not cheer a situation where large wind and solar projects are in a far worse position than they were two years ago. AGL has shown that it sees major mileage in investing in coal and small renewables over the next few years.

In other words, just like Tony Abbott wants it.

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