3 Brokers downgraded, page-47

The founder of ERM Power, one of the country's largest electricity retailers, says Australia has no chance of achieving its Renewable Energy Target of 23 per cent by 2020, meaning customers will be forced to pay higher prices for no environmental gain.
Amid growing unrest from the business community about the relentless push towards clean energy, Trevor St Baker said the Turnbull government might have to consider amending the legislated RET of 33,000 gigawatt hours again before the end of the decade.
"There is no way we are going to make the 33,000 target. It's impossible to get there. That's what the argument should have been about all the time, it should have been 20,000 [gigawatt hours]. That's all you can reasonably expect to be built," Mr St Baker, who is non-executive deputy chairman of ERM Power, said in an interview with The Australian Financial Review.
"Our target should be greenhouse gas reduction. There is a renewables obsession that is like this schoolyard debate."

Minerals Council of Australia chief executive Brendan Pearson said there needed to be a "clear-eyed assessment" of whether the RET was feasible, saying it added $3 billion a year to the energy costs of households and businesses each year.

"Perhaps the most sensible and rational option is to grandfather the scheme for existing projects as well as those projects not yet completed but underway," he said.
"But there is no point persisting with a scheme which just continues to raise the cost for energy users without delivering any environmental benefit. More broadly, we need to return energy policy to a technology neutral model."
Federal Energy Minister Josh Frydenberg this week said there would be no changes to the 2020 RET target while admitting it would be "a real challenge" to meet it. He said the Turnbull government is unlikely to commit to a new target for 2030, given investments contracted in the next few years are likely to run for the next decade.
The RET was already scaled back in 2015 from the Rudd government's target of 41,000 GWh but investment is still lagging behind what is required to meet the revised goal. Bloomberg New Energy Finance calculates that investment in large-scale renewables needs to more than double, to $US2.9 billion a year, compared with last year's $US1.1 billion.

News this week that ERM will pay a $123 million penalty as part of its 2016 liability under the RET instead of surrendering its full quota of Large-scale Generation Certificates (LGCs) has revived worries about whether the target is viable. The scheme allows a retailer three years to make up for the shortfall by surrendering LGCs at a later date.
The ERM move has also underscored the fact that if the target is missed, consumers will be paying higher prices that cover the cost of additional renewable energy generation, without that energy being produced, with the money used instead to pay the "shortfall charge".
Western Australian Liberal Senator Chris Back said this week the system could result in more than $1 billion a year of fines paid between 2020 and 2031 because there would not be enough renewable energy to meet the target.
Alinta Energy will also pay a shortfall charge for its 2016 liability under the RET, but chief executive Jeff Dimery rejected criticism that such a move undermined the scheme, which the company "absolutely, categorically" supports.

Mr Dimery said the ability to pay a penalty and then make good on that over the next three years by surrendering LGCs helped meet the 2020 target by creating a situation where a smaller retailer could then go forward and build renewables projects or commit to renewable power purchase contracts in confidence of the value it has locked in for the certificate.
"Having that banking facility enables smaller companies such as ourselves to actively compete with the big guys," Mr Dimery said.
"The reason we are more comfortably able to sign power purchase agreements is because we know we have a liability to fill: what I don't want to do is contract up for projects and then find I have no demand on the other side and be caught in the middle."
But Mr St Baker said there should be a wider debate about whether the RET which was amended by the Abbott government with bipartisan support, should continue in its current form.

He said that with only about 16,000 GWh of clean energy produced in Australia now that needed to be doubled to reach the 2020 target.
Even if Australia reaches 20,000 GWhs by 2020, Mr St Baker said that would leave a shortfall of 13,000 GWh or $1.2 billion a year in penalties that need to be paid by energy companies which would be passed onto household and business power bills.
"Electricity consumers will be paying $1.2 billion a year penalties a year, on top of paying about $2 billion for the 23,000 gigawatt hours. It's off in fairyland. The average punter doesn't understand what it means apart from jobs are going and they are paying more for electricity," he said.
Mr St Baker said the decision to pay the penalties instead of fulfilling its RET obligations was a "one-off" to allow the company to clear tax losses and to pay franked dividends to shareholders.

He pointed out it was about the same price to pay the non-tax deductable penalty of $65 per large-scale renewable energy certificate (LGCs) rather than the $93 per certificate.
Mr St Baker said the closure of coal-fired power stations, such as Northern in South Australia and Hazelwood in Victoria, was threatening the viability of industry.
But Australian Energy Council chief executive Matthew Warren said repealing the RET would be pointless, but conceded there was a problem with under-investment in all energy projects, both renewable and fossil fuels.
"Clearly there's something wrong. With the LGC price close to the penalty price it's not surprising some companies are taking the penalty hit. The RET is not working and the wholesale price is not working. We need a national energy strategy," he said.


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