* CO2 price uncertainty overshadows generators' financing
* Funding future cloudy for big brown-coal generators -
Fitch
* Sector faces huge investment costs to meet low-CO2 goals
By Bruce Hextall
SYDNEY, Feb 8 (Reuters) - Australia's electricity sector
faces a A$22 billion ($19 billion) headache as it seeks to
refinance debt over the next two years, with uncertainty over
efforts to put a price on carbon pollution hurting investment,
ratings agency Fitch said on Monday.
About 80 percent of the Australia's power comes from
burning coal, a major source of planet-warming carbon dioxide
pollution and for decades and cheap and easy source of fuel for
the nation.
The government's failure to win support for a comprehensive
emissions trading scheme has raised questions about value of
many power generation assets and the future costs operators
will face.
While it is widely accepted some form of carbon pricing
will be enforced, questions remain on the timing and final
shape of such laws, particularly compensation for polluting
generators.
The government's carbon pollution reduction scheme (CPRS)
laws were introduced to parliament on Monday for the third time
but look set to be rejected again in a hostile Senate, where
the government doesn't have a majority, in coming days.
Fitch said coal-fired power stations, which needed to
refinance debt as well as invest in more environmentally
friendly capacity, were most under threat.
"It may be once the details of the CPRS become known,
providers of capital will become more comfortable," said Steve
Durose, head of Fitch's Asia-Pacific Energy & Utilities team,
told Reuters.
"They want to be able to make decisions but the main problem
at present is uncertainty," he said.
Durose and colleague Sajal Kishore, in a report looking at
the 2010 outlook for the Australian power and utilities sector,
said the credit outlook was broadly stable.
CREDIT RISKS
But they said credit risk factors included high capital
expenditure requirements, significant changes to the generation
fuel mix and the higher costs of new capacity following the
introduction of renewable energy target legislation.
"It is the CPRS which has the greatest potential to change
Australia's generation sector to a greener, but more expensive,
capacity mix," the report says, adding the scheme would harm
the credit quality of carbon-intensive generators, particularly
those in southern Victoria state fired by CO2-rich brown coal.
Under the CPRS, the government is proposing a one-year
fixed carbon price of A$10 per tonne from mid-2011. Full
auctioning and trading of permits would start from 2012. The
government estimates a carbon price of A$26 a tonne in 2012-13.
The scheme would cover 1,000 of Australia's biggest
polluters to buy permits for every tonne of CO2 produced,
covering about 75 percent of national emissions.
Energy Supply Association of Australia Chief Executive Brad
Page said the power sector had a significant financing task
ahead if it was to successfully move to low-emission
generation.
"A survey of the energy supply industry in 2009 showed that
$100 billion would be required in the years to 2014, with
around $50 billion just to refinance existing energy assets,"
Page said in an email to Reuters.
Australia's parliament has passed laws mandating a target
of generating 20 percent of its energy from renewable sources
by 2020, a scheme designed to complement the CPRS.
"In the generation sector we are seeing an anticipated
increase in renewable generation and we would expect that
investment to be funded by a usual mix of debt and equity,"
Durose said.
One of Australia's dirtiest power stations, the 1,675
megawatt brown-coal Hazelwood plant in Victoria, owned by
British company International Power, refinanced A$742 million
of debt last week.
"It may be that the banks were too scared to do anything
else because the alternative for the banks would have been that
Hazelwood would have been unlikely to find that capital from
somewhere outside its own banking group unless International
Power put in more equity," said Durose.
An electricity trader said that with the government
offering compensation of $7.3 billion, generators were still
likely to refinance debt and borrow to build renewable
generating assets.
"The banks will stick with the generators like Nike will
stick with Tiger Woods," the trader said.
(Editing by David Fogarty)
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