Energy Sector Needs Over $97 Billion – ESAA

Yesterday, the Energy Supply Association of Australia (ESAA) released the results of its ‘Global Financial Crisis Survey‘. The key findings were that:

• Over $97 billion is needed to refinance existing generation and network assets and to invest in existing and new assets;
• $29 billion is required for network refinancing alone, and around $17.5 billion of this must occur over the next two years;
• The market for such refinancing has become tight recently with credit spreads widening to up to 350 basis points; and
• Electricity generators estimate they would need to spend another $20 billion in CPRS permits over the next five years.

The ESAA say the sector is under stress due to:

• The ‘largely unmitigated’ impact of CPRS on the generators;
• The AER’s new Weighted Cost of Capital Review affecting margins on networks;
• The Government’s banking guarantee crowding out non-bank lenders; and
• The potential for the new Rudd Bank to divert investment to commercial property sectors.

The ESAA want:

• Allocation of a sufficient amount of free permits to coal-fired generators. The report argues that the current proposal is inadequate;
• The AER to ensure that network assets can still produce an ‘adequate rate of return’; and
• The Government to avoid favouring particular sectors for investment assistance (or to ‘favour’ the energy sector with such financing facilities).