The Owen Report, considered long overdue by the power investment community, highlights a number of key risk issues in NSW energy strategy.
Ahead of a national ETS, cynics might see the NSW Government attempting to transfer state (NSW tax payer) owned carbon and energy risk to the private sector. The market reality, however, is that investment funds and energy asset managers already price carbon, climate and policy uncertainty risk into investment decisions and are increasingly moving towards gas, energy efficiency and renewables while discounting carbon exposed assets which might include Macquarie Generation.
A recent IEA publication states that investment risk in carbon intensive generation may require a 40% discount on recent valuations to address these risks.
A key issue for the private sector that is served energy or pays taxes in Australia, is how the NSW Government proceeds. Grandfathering the assets by excluding them from near term emissions schemes or environmental controls smears the costs over Australian business and makes compliance targets harder for the rest to achieve. Discounting the assets to reflect the risk may not meet Treasury’s insatiable demands.
The political climate has shifted to the point where most taxpayers dont want to continue to subsidise dirty players yet State Treasury’s addiction to energy revenue seems increasingly harder to sustain given the emergent risks in the black power market. The next steps will be very important politically, socially, economically and for the ETS.
The additional social costs towards energy workers and families needs to be recognised and a transitionary support program for affected stakeholders implemented. In other countries where energy markets have been privatised sectors reskilling, investment zones, education and direct financial injection has proven critical in helping communities to adapt. Politicians, their advisors and agencies need to be mindful of long term planning and start recognising that business as usual decision making is no longer adequate.
