Eutility's weekly news

AGL, Origin Energy investors worried as PM cracks down on big power-Angle Macdonald-Smith

AGL, Origin Energy investors worried as PM cracks down on big power-Angle Macdonald-Smith

Energy suppliers and their investors have been left stunned by the shredding of the government's National Energy Guarantee, putting question marks over an estimated $3 billion-$5 billion of proposed investments across the sector and raising fears of forced break-ups and asset sales.

The seriously watered-down policy leaves aside targets for emissions reductions but clings onto requirements for reliable power. It has torn up hopes of putting in place an integrated energy and climate policy that would have broken the investment drought affecting any new supply other than renewable energy to replace exiting coal power stations.

The remains of the NEG are to be beefed up by a raft of recommendations directly adopted from the competition watchdog's inquiry into power prices aimed at tackling runaway prices. They include the imposition of a "default" price for electricity retail tariffs intended to save households up to $416 a year and almost $1500 for small businesses but deemed by investors as a move toward price re-regulation.

Among the measures to be wielded as a "big stick" over major suppliers is the threat - as a last resort - of forced divestment of power plants or whole businesses by integrated suppliers such as AGL Energy.

Prime Minister Malcolm Turnbull pointed to a trebling of profits by some majors and promised to "stop the rampant price gouging by the big energy companies". The comments shocked and unnerved suppliers and investors who pointed out that the Australian Competition and Consumer Commission had found no evidence of market manipulation.

Hayberry Global Fund's Matthew Blumberg said he saw the comments from Mr Turnbull as "a big risk for investors in both AGL and Origin, pointing to the threat to issue "directions on operations" to ensure reliable and affordable electricity supply.

"It is going to be a very difficult competitive environment to operate in where the government, with the power to separate the wholesale and retail businesses of AGL, Origin or EnergyAustralia, is monitoring each strategic move that is made in the market," he said.

EnergyAustralia, the third-biggest integrated generator-retailer, said that companies found to have behaved unlawfully should face penalties but noted the ACCC had spent 15 months investigating power prices without finding any misuse of market power outside government-owned generators in Queensland.

"It looks like the opportunity for energy policy certainty has been lost," EnergyAustralia's head of energy Mark Collette said.

"That's profoundly disappointing."

Origin Energy shares sank 2.8 per cent, while AGL shares held surprisingly resilient given that company is widely seen as the prime target for the Prime Minister's attackafter its stubborn pursuit of plans to close the Liddell coal generator in NSW in 2022.

"Some of the things that are being talked about are quite radical: I'm not sure the evidence base really stacks up on these proposals," another energy investor said.

"It's a worry because you start with this industry and then what about the next industry. It makes it a very unsettling set of circumstances in which to invest."

Industry sources said there must now be doubts around between $3 billion and $5 billion of proposed investments by the three major suppliers in new gas-fired power stations and other new sources of supply that could have been made more confidently under the NEG.

he government will move ahead with the ACCC's suggestion of government-backed underwriting of new "stable, low-cost" power stations targeted for industrial customers. But some sources cautioned such intervention could derail other proposed investments.

Mr Collette said investments in new supply were now "harder without policy certainty", while an Origin spokeswoman said the company hoped to see some consultation on the detail of any regulation and legislation.

Energy industry spokeswoman Sarah McNamara, chief executive of the Australian Energy Council, said caps on retail power prices and other interventions "are trying to treat the symptoms and not the cause" of the energy crisis.

"Re-regulation has the very real potential to damage competition and confidence," she noted.

Australian Financial Review

Post a comment

Captcha Image