Invest
‘Investors should take note’: Gas-led recovery to lead to stranded assets
Australia’s gas-led economic recovery could be relying on inaccurate financial assumptions, new research has revealed.
‘Investors should take note’: Gas-led recovery to lead to stranded assets
Australia’s gas-led economic recovery could be relying on inaccurate financial assumptions, new research has revealed.
A report released by the Institute of Energy Economics and Financial Analysis (IEEFA) shows taxpayers should be wary of new investment in gas and coal-fired power plants due to the increasing likelihood of assets being stranded.
A key part of the Morrison government’s economic recovery from the COVID-19 pandemic is centred around cheap, reliable gas energy to power Australian homes and businesses.
“To help fire our economic recovery, the next plank in our JobMaker plan is to deliver more Australian gas where it is needed at an internationally competitive price,” the Prime Minister said when announcing the proposal in September last year.
“Our competitive advantage has always been based on affordable, reliable energy. As we turn to our economic recovery from COVID-19, affordable gas will play a central role in re-establishing the strong economy we need for jobs growth, funding government services and opportunities for all.”
However, report author and LNG/gas analyst Bruce Robertson questions the financials behind the project with gas and coal becoming a smaller portion of Australia’s energy grid over the lifetime of the asset.
“Far from being constant, our research shows that the capacity factor for coal-fired power plants has been declining globally since before the beginning of last decade – with many soon to become stranded assets,” said Mr Robertson.
The report warned that despite becoming increasingly less important, the calculations are based on ‘constant’ power over a lifetime, with many of these new assets unlikely to ever be constantly used.
“This leads to an underestimation of the cost for each unit of electricity to be produced over the power plant’s lifetime – what’s called levelised cost of energy (LCOE). And this cost underestimation causes a financial overvaluation of the energy asset, which can mislead potential investors,” he continued.
“Investors should take note.”
Despite questionable economics, polling data released by the Lowy Institute last month shows the majority of Australians are still in support of the gas-led recovery as a gradual step towards renewable energy.
The Lowy Institute said the gas-led recovery appears to have general support, with 58 per cent of respondents in favour of Australia increasing the use of gas in the country.
A third of Australians said the problem of global warming should be addressed. However, they noted the effects will be gradual, meaning dealing with the situation should also be done in smaller steps.
Only 9 per cent of Australians – one of the lowest results of the past decade – said that until we are sure that global warming is really a problem, we should not take any steps that would have economic costs.
RELATED ARTICLES
About the author
About the author
Commodity
Is crypto getting the shaft for a big gold re-polish?
While the spotlight shines on trendy cryptocurrencies, investors evidently haven’t lost interest in traditional and tangible commodities like precious metals. Read more
Commodity
Morrison’s gas-led recovery sees manufacturers ‘held to ransom’ by gas cartel
Australia’s manufacturing sector and its workers are being ‘held to ransom’ by the gas cartel, despite the Morrison government promising cheap gas as a key policy in the COVID-19 recovery planRead more
Commodity
Credibility up in flames as government opens 21 new gas and oil exploration sites
Climate groups are saying the Morrison government lacks any credibility when it comes to climate change after it announced 21 new gas and oil exploration areas. Read more
Commodity
Morrison urged to drop gas-led recovery after new global warning
The International Energy Agency has found that countries like Australia need to transition their energy grid within 14 years to reach net zero, defying Prime Minister Scott Morrison’s gas-led economic ...Read more
Commodity
Taxpayers to bear brunt of Morrison’s $2bn pledge to oil refineries
Taxpayers are set to be on the hook for up to $2 billion over the next decade as the government commits to protecting two oil refineries. Read more
Commodity
Government unveils $1bn energy deal
The Morrison government has announced a $1.1 billion energy and emissions agreement between the federal and South Australian state government. Read more
Commodity
Australia can get rid of coal without prices skyrocketing
Australia’s transition to renewable energy is unlikely to create unaffordable electricity prices or come at the risk to reliability, with policymakers urged to generate the majority of power from ...Read more
Commodity
Retail clients will no longer dabble in binary options following ASIC ban
ASIC is cracking down on binary options by banning their sale to retail clients as of 3 May, after trading in this financial product cost retail clients an estimated net $490 million in 2018. Read more
Commodity
Is crypto getting the shaft for a big gold re-polish?
While the spotlight shines on trendy cryptocurrencies, investors evidently haven’t lost interest in traditional and tangible commodities like precious metals. Read more
Commodity
Morrison’s gas-led recovery sees manufacturers ‘held to ransom’ by gas cartel
Australia’s manufacturing sector and its workers are being ‘held to ransom’ by the gas cartel, despite the Morrison government promising cheap gas as a key policy in the COVID-19 recovery planRead more
Commodity
Credibility up in flames as government opens 21 new gas and oil exploration sites
Climate groups are saying the Morrison government lacks any credibility when it comes to climate change after it announced 21 new gas and oil exploration areas. Read more
Commodity
Morrison urged to drop gas-led recovery after new global warning
The International Energy Agency has found that countries like Australia need to transition their energy grid within 14 years to reach net zero, defying Prime Minister Scott Morrison’s gas-led economic ...Read more
Commodity
Taxpayers to bear brunt of Morrison’s $2bn pledge to oil refineries
Taxpayers are set to be on the hook for up to $2 billion over the next decade as the government commits to protecting two oil refineries. Read more
Commodity
Government unveils $1bn energy deal
The Morrison government has announced a $1.1 billion energy and emissions agreement between the federal and South Australian state government. Read more
Commodity
Australia can get rid of coal without prices skyrocketing
Australia’s transition to renewable energy is unlikely to create unaffordable electricity prices or come at the risk to reliability, with policymakers urged to generate the majority of power from ...Read more
Commodity
Retail clients will no longer dabble in binary options following ASIC ban
ASIC is cracking down on binary options by banning their sale to retail clients as of 3 May, after trading in this financial product cost retail clients an estimated net $490 million in 2018. Read more
