Australia Power Report 2012

Includes 3 FREE quarterly updates

BMI View: Coal-fired energy generation continues to dominate Australia’s energy mix, and our ten-year forecasts project that thermal sources will make the biggest contribution to power generation over the medium term. Legislative changes are, however, likely to affect the energy market. The Clean Energy Bill will lead to the introduction of a fixed-priced carbon tax in July 2012, while the government is also calling for 20% of energy to be generated from renewable sources (most likely wind) by 2020.

The latest Australia power report from BMI forecasts that the country’s power consumption will rise from an estimated 228.8TWh in 2011 to 277.2TWh by the end of the forecast period in 2021, representing average annual growth of 1.9% over the period. Thermal generation – comprising coal, gas and oil – is expected to increase by an average 1.3% per annum between 2011 and 2016, but growth looks set to rise to 2.1% between 2016 and 2021.

A mature market, Australia represents an attractive investment prospect, given its stable regulatory environment and the electricity demands of its energy-intensive industries. But Australia’s vast size creates challenges in terms of energy transmission and distribution. There are several energy-generation projects under construction in the country, including TRUenergy’s plans for two gas-fired power stations in Queensland and Verve Energy’s high efficiency gas turbine project at its Kwinana Power Station in Western Australia. In renewables, there are several wind farms under construction, as well as plans to develop solar power facilities, with the Moree solar farm being one such project. Nuclear power is not on the agenda.

Australia is ranked third, behind China and India, in BMI’s regional Power Risk/Reward Ratings (RRRs), thanks to its low risk profile and competitive landscape. Australia has a particularly strong risk profile, with the country’s sound business environment a key factor in raising its score for this component. Regional neighbours outperform Australia in terms of capacity for market growth.

Key developments in Australia’s power sector include:

• July 2012 will see the introduction of a carbon tax, which will evolve into a cap-and-trade scheme by 2015. There are fears that this could deter potential investors.
• From July 2011, the Australian government began to gradually phase out solar credits, with their eventual elimination due by July 2013.
• In March 2012, Epuron and joint venture (JV) partner Macquarie Capital sold the Silverton wind farm project to AGL. We believe that this decision was partly motivated by the New South Wales’ government’s stringent guidelines for wind farms, which might have affected profitability.