Energy & Utilities Sector Insights – April 2012

NAB’s Sector Insight reports utilise our expertise across a range of industry sectors to explore current issues, present forward looking […]


NAB’s Sector Insight reports utilise our expertise across a range of industry sectors to explore current issues, present forward looking views and opportunities for growth and progression. Our reports also include some perspectives from respected industry leaders in each edition.

Welcome to our inaugural issue of Sector Insights: Energy & Utilities.

We are pleased to launch the inaugural issue of ‘Sector Insights: Energy & Utilities’ – a publication that seeks to offer some unique insights into the energy sector and credit markets.

As well as commentary from a number of our key senior executives, we are extremely fortunate to have two industry leaders, Richard McIndoe, Managing Director, TRUenergy, and Rob Grant, Chief Executive Officer, Pacific Hydro, share their views around the opportunities and challenges impacting their business.

The European sovereign debt crisis continues to create increased uncertainty and risk, resulting in credit markets remaining expensive and volatile until a resolution is reached.

There is heightened interest in the cost of funds in Australia, with the major banks moving to sever the link between the Reserve Bank of Australia’s cash rate decisions and their own lending rates.

At the same time we are at a very interesting juncture in the history of the Australian energy market.

The introduction of a price for carbon has been extensively debated for many years and has proven to be very politically sensitive. The Clean Energy Future legislative package passed in November 2011 will result in the introduction of a fixed carbon price from 1 July 2012 transitioning to an emissions trading scheme from July 2015.

Significant investment is required to meet the government’s legislated Large Renewable Energy Target (LRET) of renewable power generation by 2020.

New wind farm developments have stalled over the last two years due to the overhang of Renewable Energy Certificates (RECs). The depressed REC price has in turn resulted in wind farm developers having difficulty securing long-term Power Purchase Agreements.

There will need to be a rapid acceleration in investment to meet the government’s legislated target.

The Clean Energy Future package together with the LRET and other initiatives, such as the Solar Flagship program, are designed to reduce the emissions intensity of Australia’s electricity generation sector. This, however, is not a simple task as other factors such as increasing gas prices arising from the development of new LNG projects in Australia further impede the transition from a coal dominated electricity generation sector. The carbon price alone will not reduce Australia’s reliance on low-cost brown and black coal.

Substantial capital expenditure is also required to ensure our ageing transmission and distribution energy infrastructure remains safe and reliable.

We explore how gradual privatisation of the energy sector remains a constant with the NSW government recently announcing a second round of electricity generation privatisation.

We are sure 2012 will be another interesting and eventful year in the energy sector and market more broadly.

Download the full report to find out more.