S&P says Australia's uncertain energy policy is undermining investor confidence

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  • S&P says Australia’s energy market remains in a state of flux as political disagreements prolong policy uncertainty.
  • The uncertain landscape is undermining investor confidence in investing in new generation capacity.
  • And the demise of the federal government’s National Energy Guarantee (NEG) policy and the uncertain likelihood of an emissions goal beyond 2020 could affect the long-term development of renewable energy.

Uncertainty in Australia’s energy policy is holding back investment vital to ensure system reliability and capacity, says ratings agency S&P.

For renewable energy, the demise of the federal government’s National Energy Guarantee (NEG) policy and the uncertain likelihood of an emissions goal beyond 2020 casts doubt on the long-term development pipeline.

The Coalition Government under Scott Morrison earlier this month declared the National Energy Guarantee scheme, supported by deposed prime minister Malcolm Turnbull, dead.

“The uncertain energy policy landscape in Australia continues to undermine investor confidence to plan and undertake investment in new generation capacity to meet variable market conditions,” says S&P Global Ratings credit analyst Parvathy Iyer.

“With state and federal elections looming over the next six to nine months, we believe any clarity is unlikely to come anytime soon.”

However, S&P says the falling cost of renewables, coupled with individual states’ own renewable energy targets, is likely to spur some new generation.

S&P says many factors point to the need for a reliable mix of generation capacity in the National Electricity Market.

Surges in peak demand, variable weather conditions, fluctuating daily demand, and the intermittent supply of renewables stresses the importance of reliable generation.

S&P says these issues merit attention amid an operating environment of aging large-scale coal-fired plants and the need to manage their scheduled retirement in the coming decades.

Meet Vora, and S&P Global Ratings credit analyst, says regulatory intervention could be credit negative for the sector over the medium to longer term because it can reduce market incentives for investments.

“The intervention could hurt the profitability of market participants, subsequently pricing out some of the smaller players and reducing overall competition,” Vora says.

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