Infigen Signals Its Own Demise – as the RET Review Panel Gets to Work

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Infigen is an all-wind-power-outfit that used to be called Babcock and Brown – which collapsed spectacularly in 2009 – taking $10 billion of investors’ and creditors’ money with it on the way out (see this story). The way things are headed – get set for a replay.

Infigen is bleeding cash (it backed up a $55 million loss in 2011/12 with an $80 million loss, last financial year). It’s been scrambling to get development approvals for all of its projects so they can be flogged off ASAP and the cash used to ward off the receiver. But, in the current climate, its chances of finding buyers are slimmer than a German supermodel.

With the RET Review Panel odds-on favourites to recommend that the mandatory Renewable Energy Target be scrapped altogether, Infigen are in more trouble than Ned Kelly was at Glenrowan. And they know it.

In an extraordinary move, the boys from Infigen have hit the media pleading for mercy – hectoring and attempting to bully the government, in a last ditch effort to save their skins.

STT puts their hysterical language down to the fact that they’re just working their way through the 5 stages of grief: denial, anger, bargaining, depression and acceptance.

In this ABC radio interview Infigen’s Miles “Boy” George appears to be grappling with “anger” (stage 2); while engaging in a curious form of “bargaining” (stage 3); and coming to grips with mounting “depression” (stage 4).

Budget 2014: Clean energy bodies call for compensation as Government cuts green funding
ABC (Radio Australia)
Jake Sturmer, Alex McDonald
16 May 2014

Clean energy industry representatives have slammed federal budget cuts in the sector, calling for compensation if legislation is changed.

The Federal Government has taken the sword to renewable energy, cutting hundreds of millions of dollars from various green programs.

“I think it’s a very depressing message for the industry and for the investors in it,” said Miles George, head of the country’s largest renewable energy provider, Infigen.

Among the changes is a decision to spread the Government’s $2.55 billion Emissions Reduction Fund (direct action policy) over 10 years rather than four.

Funding for research into carbon capture and storage has also been targeted and will lose $460 million over three years, and a $100 million program to roll out solar energy systems in 25 towns and 100 schools has been slashed to $2.1 million over three years.

Other clean technology programs face a $44.7 million cut.

Last year the Government was promising hefty rebates to help install one million rooftop solar systems at a cost of $500 million. That commitment has also been dumped.

The $2.5 billion Australian Renewable Energy Agency (ARENA) will also be absorbed by the industry department – saving the budget $1.3 billion.

“If we actually throw away options, a fear for me is that the energy mix that we currently have just gets ossified,” said ARENA chairman Greg Bourne.

“Infrastructure is hospitals, infrastructure is schools, but infrastructure is also the energy system that you have within a country and without the energy system, your overall system begins to grind to a halt.”

Mr Bourne says the current reliance on traditional energy sources is “not fit for purpose in this century”.

The last significant piece of green energy legislation, the Renewable Energy Target (RET), is currently under review.

After investing billions in the sector, Mr George warns any changes would be a breach of faith.

“If the legislation is now to be changed we would expect to be fully compensated,” he said.

“If [they] took the RET away tomorrow … we would lose 40 per cent of our revenue and our Australian business would fail … along with nearly all wind farms and wind farm businesses in Australia.”

Mr George says Infigen has made investments over the past 10 years on the basis of legislation that had “bi-partisan support”.

“If the legislation is now to be changed retrospectively and that has a negative effect on our business, we would expect to be fully compensated,” he said.

“This is the way Australia does it. Australia does not wreck existing legislation without compensation.”

The Environment Minister declined an interview but maintains that tough decisions needed to be made in the current economic climate.
ABC (Radio Australia)

As head barracker for the soon to be extinct ARENA fund – and with the plug about to be pulled on his cushy, highly paid job – we wouldn’t expect to hear anything but panicked twaddle from Greg Bourne. And he doesn’t disappoint.

We just love Greg’s hilarious claim that traditional energy sources are “not fit for purpose in this century”. Now Greg can’t have been paying attention to happenings in Australia’s energy market, at all.

The ONLY energy source that has proven itself “not fit for purpose” is wind power: insanely expensive; delivered at crazy, random intervals; and which has demonstrably failed to reduce CO2 emissions in the electricity sector, simply because it can never be supplied on-demand (see our posts here and here and here and here and here and here). It’s the last point which is the only possible justification for the enormous stream of subsidies filched from Australian power consumers – but the wind industry and its parasites are yet to produce a shred of credible evidence that wind power has reduced CO2 emissions in the electricity sector.

With such a tenuous grip on the realities of Australia’s energy market, it’s little wonder that Bourne and his beloved ARENA fund have been given the axe. Oh dear, how sad, never mind.

And speaking of tenuous grips on reality, we couldn’t help but giggle at Miles George’s claim that Infigen is “the country’s largest renewable energy provider” – which will come as quite a surprise to Snowy Hydro Limited, which operates the Snowy Hydro Scheme.

True it is that Infigen is a “big player” in Australia’s wind industry. Infigen operates 6 wind farms in Australia, with a total installed capacity of 556 MW. That represents about 18% of Australia’s total installed wind power capacity of 3,080 MW.  But for Miles to call his little outfit Australia’s largest renewable energy provider is a monstrous stretch.

The Snowy Hydro Scheme was the first major renewable energy producer in Australia – and remains the largest, by a country mile.  Infigen’s piddling 556 MW of installed wind farm capacity hardly compares with Snowy Hydro’s 3,950 MW. And even then, that’s to compare a pig’s ear with a silk purse.

The one critical and colossal difference between Infigen’s ageing fleet of giant fans and the Snowy Hydro Scheme, is that the former are lucky to deliver any power at all, on any given day (see our post here); whereas, the latter delivers truly clean, cheap, reliable power – at any time, of any day – and whenever there’s a demand for it.

Not only does young Miles have a deluded view of Infigen’s importance in the renewable energy sector, he clearly hasn’t read the Renewable Energy (Electricity) Act 2000.

To reduce or scrap the mandatory RET, the coalition does not need to change the legislation retrospectively, as Miles moans. The Renewable Energy (Electricity) Act itself makes it clear that the Government can increase or decrease the mandatory target (by any margin it chooses) every two years, at will. For Miles’ benefit, here’s s162 which says:

Periodic reviews of operation of renewable energy legislation

(1) The Climate Change Authority must conduct reviews of the following:
(a) the operation of this Act and the scheme constituted by this Act;
(b) the operation of the regulations;
(c) the operation of the Renewable Energy (Electricity) (Large-scale Generation Shortfall Charge) Act 2000;
(d) the operation of the Renewable Energy (Electricity) (Small-scale Technology Shortfall Charge) Act 2010;
(e) the diversity of renewable energy access to the scheme constituted by this Act, to be considered with reference to a cost benefit analysis of the environmental and economic impact of that access.

Public consultation

(2) In conducting a review, the Climate Change Authority must make provision for public consultation.

Report

(3) The Climate Change Authority must:
(a) give the Minister a report of the review; and
(b) as soon as practicable after giving the report to the Minister, publish the report on the Climate Change Authority’s website.
(4) The Minister must cause copies of a report under subsection (3) to be tabled in each House of the Parliament within 15 sitting days of that House after the review is completed.

First review

(5) The first review under subsection (1) must be completed before the end of 31 December 2012.

Subsequent reviews

(6) Each subsequent review under subsection (1) must be completed within 2 years after the deadline for completion of the previous review.
(7) For the purposes of subsections (4), (5) and (6), a review is completed when the report of the review is given to the Minister under subsection (3).

Recommendations

(8) A report of a review under subsection (1) may set out recommendations to the Commonwealth Government.
(9) In formulating a recommendation that the Commonwealth Government should take particular action, the Climate Change Authority must analyse the costs and benefits of that action.
(10) Subsection (9) does not prevent the Climate Change Authority from taking other matters into account in formulating a recommendation.
(11) A recommendation must not be inconsistent with the objects of this Act.
(12) If a report of a review under subsection (1) sets out one or more recommendations to the Commonwealth Government, the report must set out the Climate Change Authority’s reasons for those recommendations.

Government response to recommendations

(13) If a report of a review under subsection (1) sets out one or more recommendations to the Commonwealth Government:
(a) as soon as practicable after receiving the report, the Minister must cause to be prepared a statement setting out the Commonwealth Government’s response to each of the recommendations; and
(b) within 6 months after receiving the report, the Minister must cause copies of the statement to be tabled in each House of the Parliament.
(14) The Commonwealth Government’s response to the recommendations may have regard to the views of the following:
(a) the Climate Change Authority;
(b) the Regulator;
(c) such other persons as the Minister considers relevant.

Well, that couldn’t be much clearer.

The Act itself provides that reviews of the mandatory RET must take place every two years; taking into account the cost and benefits of any recommendation made, as part of the review. There is nothing in that section to suggest that the government is bound to maintain any particular figure for the mandatory RET; or to accept assertions by the wind industry that the “benefits” of wind power outweigh its “costs”. Indeed, the section is entirely to the contrary.

By reference to that section, the RET Review Panel would be completely within its rights to recommend that the mandatory RET be scrapped in its entirety; simply because the demonstrated and extraordinary costs of wind power (the key beneficiary of the RET) completely outweighs any of its purported benefits.

Moreover, as the wind industry simply cannot provide any credible evidence that wind power satisfies the key objective of the Act – namely, actually reducing emissions of greenhouse gases in the electricity sector (see s3) – then a recommendation to substantially wind back or scrap the RET would not be inconsistent with the objects of the Act (see s162(11) above).

Such a recommendation is absolutely on the cards – and the Coalition is itching to implement it.

The next furphy pitched up by Miles is that there is some sort of “culture of compensation” in Australia; which requires companies benefiting from industry subsidy schemes to be compensated – in full – should that scheme be wound back or scrapped.

This may come as a disappointment to Infigen, but there is no such “culture” in Australia; nor, more importantly, is it the law.

Back in the late 1980s, the Commonwealth government amended tax legislation to provide huge tax benefits for investments in “Managed Investment Schemes”. During the late 1990s and 2000s, the tax change saw a flood of money pour into industrial scale vineyards; timber, olive and almond plantations. The MIS tax breaks were rightly considered a monstrous tax rort that allowed companies running Managed Investment Schemes to make obscene profits upfront at investors’ ultimate expense. In 2007, the government scrapped the tax breaks – a decision which led to enormous corporate collapses of MIS outfits – like Timbercorp and Great Southern Plantations – with MIS investors collectively losing 100s of $millions. Thousands of MIS investors lost their shirts, but none of them received a cent in compensation from the Commonwealth; nor, quite obviously, did the dozens of MIS companies that went bust. So no evidence of a “culture of compensation” there, Miles.

As to the law, Infigen does not have a contract with the Commonwealth government to supply wind power at guaranteed rates – or in exchange for Renewable Energy Certificates (RECs); it is nothing more than the beneficiary of the mandatory RET and the RECs issued under it.

An outfit called Australian Woollen Mills Pty Ltd took on the Commonwealth chasing “lost” subsidies, taking their case all the way to the High Court.

In 1946, the government announced it would pay a subsidy to manufacturers of wool who purchased and used it for local manufacture, after 30 June 1946. Australian Woollen Mills purchased and used wool for local manufacture between 1946-48; and received some payments under the scheme. The government subsequently stopped its subsidy scheme and Australian Woollen Mills sued the government for the subsidies it claimed it was due.

In 1954, the High Court dismissed Australian Woollen Mills’ claim that the offer to provide subsidies amounted to a contract between it and the government (on the ground that there was no consideration for the “promise” to provide the subsidies); and also concluded that there was no intention on the part of the government to create legal relations. The High Court held that the subsidy scheme was nothing more than a government scheme to promote industry; and, as such, there was no legal basis for Australian Woollen Mills to recover the subsidies promised (but not paid) under the scheme.

And so it is with the mandatory RET/REC scheme. If Infigen are out to overturn a High Court decision – which has been routinely applied for 60 years – we wish them the best of luck. They’ll need it.

Which brings us to our final observation on Infigen’s declaration of surrender.

We think Miles has understated Infigen’s potential losses if the mandatory RET is substantially reduced or scrapped in its entirety, when he talks about a 40% reduction in revenue.

STT thinks that – in the event the mandatory RET is substantially reduced or scrapped outright – Infigen will need to declare itself insolvent, there and then. The retailers with which it has Power Purchase Agreements are hardly likely to consider themselves bound by those agreements; as the Renewable Energy Certificates they receive as part of the deal would instantly collapse in value – and may well become worthless.

As night follows day – faced with mounting losses due to a collapse in the REC price – those retailers will seek to avoid any ongoing obligations to Infigen under those agreements – whether by reference to the terms of their agreements; or under the doctrine of contractual “frustration”. That well-settled doctrine allows a court to release the parties from their obligations to continue to perform a contract where – through no fault of their own – a supervening event renders performance of the contract something fundamentally different from that anticipated by the parties.

So, if Infigen is looking for compensation for “losses” suffered if the RET is scrapped, it’s unlikely to get any joy from a Coalition government facing a voter backlash for bringing an end to the “age of entitlement” in its first budget. And it may end up in a position where its retail customers have torn up their PPAs, leaving it at the mercy of its mounting list of creditors.

Meanwhile – back in the real world – real businesses that employ thousands have hit the RET Review Panel with submissions detailing the real jobs that will inevitably be lost, unless the RET gets the axe now. Here’s The Australian on the risk created by the RET to Australia’s real economy.

Smelter pleading for concessions on Renewable Energy Target
The Australian
Annabel Hepworth, Matthew Denholm
17 May 2014

THE Coalition faces fresh pressure over the Renewable Energy Target as an aluminium smelter warns it could have to sack workers without major changes to the scheme and a key regulator warns that it is hitting consumers with “unnecessary and avoidable” costs.

In a submission to the RET review panel headed by businessman Dick Warburton, the NSW IPART says renewable energy has a “relatively high cost” compared with the Coalition’s proposed emissions reduction fund and existing carbon price.

The RET added about $107 to a typical electricity bill in NSW in 2013-14, but “these costs are unnecessary and avoidable if the same amount of emissions reduction can be achieved through less expensive means,” IPART chairman Peter Boxall says in the submission.

It comes as Tasmania’s Bell Bay aluminium smelter warns it will have to sack workers unless trade-exposed manufacturers are granted a full exemption from the imposts of the scheme.

Owners Pacific Aluminium yesterday said the southern hemisphere’s first smelter, in Tasmania’s north, had lost $48m in extra energy costs under the RET since it started in 2001.

Bell Bay Aluminium general manager Ray Mostogl said that Australia’s aluminium industry already faced “unprecedented challenges to its immediate viability” linked to depressed aluminium prices and the high Australian dollar.
The Australian

Bell Bay Aluminium employs close to 500 people; produces around 190,000 tonnes of aluminium annually; and has been at it since 1955.

Dick Warburton and his colleagues on the RET Review Panel are acutely aware of the negative cost impact that the mandatory RET is having on real businesses – like Bell Bay Aluminium and thousands of other energy intensive businesses, including Australia’s manufacturing sector.

There can be no justification for the retention of an insanely expensive and utterly ineffective subsidy scheme, which has done nothing more than prop up profligate, corporate cowboys like Infigen.

The mandatory Renewable Energy Target must go now.