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‘Investors should take note’: Gas-led recovery to lead to stranded assets

  • June 25 2021
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Invest

‘Investors should take note’: Gas-led recovery to lead to stranded assets

By Cameron Micallef
June 25 2021

Australia’s gas-led economic recovery could be relying on inaccurate financial assumptions, new research has revealed.

Gas-led recovery to lead to stranded assets

‘Investors should take note’: Gas-led recovery to lead to stranded assets

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  • June 25 2021
  • Share

Australia’s gas-led economic recovery could be relying on inaccurate financial assumptions, new research has revealed.

Gas-led recovery to lead to stranded assets

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.

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“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.

‘Investors should take note’: Gas-led recovery to lead to stranded assets
Gas-led recovery to lead to stranded assets
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About the author

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Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

author image
Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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