This week’s largest leveraged buyout in corporate history (US$45 billion) by KKR and Texas Pacific Group of TXU, has sent clear signals to the market concerning climate risk in the utility sector. The decision to reduce coal fuel dependency by 75% equates to a 50.8 million tonnes annual reduction in carbon emissions.

The decision to shelve 8 out of 11 proposed new coal fired power stations also reflects increasing legislative and litigation risk due to anticipated new air quality legislation and future carbon pricing.  The announced US$400 million investment in efficincy and renewables has also delivered a strong message to competitors and reflects not only customer demand for cleaner power but a strong risk management approach. Nuclear plants appear to have too long a build time with escalating costs while gas prices continue to rise, making renewables considerably more attractive. Coal remains a diminishing option for many others until Federal and State air quality and carbon tax positions begin to harden. One repurcussion for international investors is that many will try and scamble for a similar position. For some, many of the sweeter options have already gone and demand may be hard to meet. For specialist strategic energy advice contact Dr Karl Mallon on +61280034514.