Australia's `Depressing' Clean Energy Policies Deter Investors
Wind turbines along the coastline of Portland
Carla Gottgens/Bloomberg
Investors are shunning Australian renewable energy stocks, unsure of government policy and whether it will start emissions trading.
Investors are shunning Australian renewable energy stocks, unsure of government policy and whether it will start emissions trading. Photographer: Carla Gottgens/Bloomberg
Steam flow at the Geodynamics Habanero 3 well
Geodynamics Ltd. via Bloomberg
An Australian index of 78 clean energy stocks, including geothermal power company Geodynamics, dropped 31 percent in the year that ended July 30 as the benchmark S&P/ASX 200 Index rose 6 percent.
An Australian index of 78 clean energy stocks, including geothermal power company Geodynamics, dropped 31 percent in the year that ended July 30 as the benchmark S&P/ASX 200 Index rose 6 percent. Source: Geodynamics Ltd. via Bloomberg
Rush hour traffic in Sydney
Ian Waldie/Bloomberg
Traffic moves along the Warringah Freeway during rush hour in Sydney.
Traffic moves along the Warringah Freeway during rush hour in Sydney. Photographer: Ian Waldie/Bloomberg
Australia's Prime Minister Julia Gillard
Graham Denholm/Getty Images
Ruling Labor party leader Julia Gillard plans to delay an emissions trading system until after 2012 if re-elected and to set up a citizens' group of "ordinary Australians" to help decide on a course of action to reduce greenhouse gases.
Ruling Labor party leader Julia Gillard plans to delay an emissions trading system until after 2012 if re-elected and to set up a citizens' group of "ordinary Australians" to help decide on a course of action to reduce greenhouse gases. Photographer: Graham Denholm/Getty Images
The Arkx Clean Energy Fund’s managers are Australians who don’t have a dollar invested in Australia, a stance that’s unlikely to change after the Aug. 21 election.
“We want to invest in Australia, but you cannot invest in a country that doesn’t have regulatory clarity and, worse, where the policy direction is changing every six to 12 months,” said Tim Buckley, manager of the fund in Sydney.
Investors are shunning Australian renewable energy stocks, unsure of government policy and whether it will start emissions trading. An Australian index of 78 clean energy stocks, from wind farm developer Infigen Energy Ltd. to geothermal power company Geodynamics Ltd., dropped 31 percent in the year that ended July 30 as the benchmark S&P/ASX 200 Index rose 6 percent.
Australia lacks the “vision” needed to stimulate the renewable energy industry, said John O’Brien, who compiles the ACT Australian Cleantech Index. The government has said it will spend A$5.1 billion ($4.6 billion) on clean energy initiatives. China is set to spend $738 billion in the next decade on renewable energy sources, a government official said July 20.
“It’s all a bit depressing in Australia,” O’Brien said.
The ruling Labor Party leader Julia Gillard plans to delay an emissions trading system until after 2012 if re-elected and to set up a citizens’ group of “ordinary Australians” to help decide on a course of action to reduce greenhouse gases.
‘Absolute Crap’
Gillard’s opponent, Liberal-National coalition leader Tony Abbott, in October said the notion that human-induced climate change was scientifically proven is “absolute crap.” He also opposes carbon trading, saying it would damage the economy.
Abbott has since proposed a A$1 billion fund to give businesses incentives to lower emissions and a 15,000-strong “green army” to repair environmental damage.
“Governments find it much easier to spend money than implement reforms,” said Kobad Bhavnagri, a Sydney-based analyst for Bloomberg New Energy Finance. “The irony is that an emissions trading system is likely to have cost the government less over the next four years than the latest round of funding promises, but achieve so much more.”
While Australia debates climate change policies, China is attracting more investment because of the “huge resources they are marshalling” to develop cleaner energy sources, said Arkx’s Buckley.
‘Dinosaur Industry’
The A$6 million Arkx Clean Energy Fund gained 15 percent in the 12-months through July, with almost a quarter of its assets in China, the fastest-growing major economy.
The SAM Smart Energy Fund, the top-ranked clean-energy fund in 2009, according to data compiled by Bloomberg New Energy Finance, rose 11.6 percent in the same period, the fund said.
“China is going to be a world leader in a whole lot of new-age industries, and Australia is going to be the world leader in the dinosaur, fossil fuel industry, and that’s not where we want Australia to be,” Buckley said.
Kevin Rudd, who became Labor prime minister in 2007, shelved his emissions trading plan in April amid opposition. Rudd was replaced by Gillard in June after losing support from voters and his party.
That set back prospects for a market-based trading system that puts a price on carbon emissions and gives companies an incentive to reduce emissions, said Michael Walsh, executive director of Hunter Hall Investment Management.
Following Not Leading
“Australia has adopted a posture of being a follower rather than a leader,” said Walsh, whose Sydney-based firm oversees A$1.8 billion, including its Hunter Hall Global Deep Green Fund, which has climbed 2.2 percent in the past year.
“Both major political parties will wait until we see further developments in other major economies such as the U.S. before passing legislation that would signal a carbon price.”
Gillard promises to spend A$1 billion over 10 years to connect renewable power to the electricity grid. She also plans emissions standards for new coal-fired power stations.
“Everything helps,” Jack Hamilton, managing director of Geodynamics, said Aug. 3. “But A$1 billion is probably not a lot in the total scheme of investment that will be required.”
It may cost as much as half that just to hook up Geodynamics’ project to harness heat from underground rock, and potentially two others to the grid, said Hamilton.
Greens Party
The market value of clean energy stocks traded in Sydney has slumped to A$9.9 billion from a peak of A$16.3 billion three years ago, Australian Cleantech said in its July report.
The outlook for those companies may depend on how much influence the Australian Greens Party holds after the election, Walsh said. Leader Bob Brown has called for a carbon price in 2011, to be followed by emissions trading.
“Even if the Greens are successful in putting the issue on the table, it will be some time before we see legislation,” said Hunter Hall’s Walsh.
Australia has set a target of generating 20 of its power from alternative sources by 2020. AGL Energy Ltd., the country’s largest electricity retailer, committed Aug. 12 to a A$1 billion wind farm after the Australian Senate approved revisions to laws aimed at spurring renewable energy investment.
Even so, a lack of regulatory certainty has hobbled Australian companies’ ability to reach spending decisions, making investors leery, said Ross Youngman, chief executive officer of Sydney-based Five Oceans Asset Management.
Youngman said he doubts either Gillard or Abbott would implement climate change policies at the pace needed to give companies and investors the clarity they seek.
Gillard’s renewable energy proposals are “probably a step in the right direction,” he said. “But it’s not enough. We’re looking for leadership on climate change that involves pricing carbon. The unfortunate thing is in 2007 Labor had a strong mandate to get this done, and they didn’t get it done.”
To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net.
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