Green power companies seeing red

This comes as falling prices of environmental energy certificates are squeezing the profitability of some renewable power operations and putting planned projects on the backburner.

One company, Novera Energy, is even quitting its listing on the Australian stockmarket after blaming the Government's low renewable energy targets.

Industry figures say they can survive thanks to long-term purchasing contracts or because prices are still strong enough to remain viable.

Yet others are looking overseas due to a lack of incentives.

Green power is in the spotlight this week as representatives from nations ranging from the US to India meet in Sydney for the first Asia-Pacific Partnership for Clean Development and Climate.

The Australian Government has tried to support industry with the development of renewable energy certificates (RECS). But offers for RECs fell from almost $36 per megawatt hour in May to spot prices recently of about $28.

RECs, created under the Renewable Energy Act 2000, must be bought by companies which themselves purchase wholesale power.

Green power companies can sell these RECs – essentially becoming extra profit or supporting the operation against cheaper alternatives like coal.

But lower-priced RECs mean lower margins, with the slump blamed on factors including an uptake in solar hot water systems to supply-demand functions of the market.

Australian Business Council for Sustainable Energy executive director Ric Brazzale said, as a rough guide, REC prices needed to be $35 and upwards to sustain the industry.

Some projects could stumble if prices were below this.

"(But) there will be some projects that will get up," he said, arguing local factors would affect development.

Mr Brazzale said some existing projects were shielded from price drops because they would have entered into long-term contracts – possibly between five and 15 years.

But he questioned how attractive planned projects using geothermal power could be with prices at current levels.

Another factor is a recent BCSE study which concluded only 150 megawatts of grid-connected projects would be needed to hit a 2010 mandatory renewable energy target.

"There's just no need to develop any new projects," Mr Brazzale said.

Pacific Hydro, producing wind and water power, was also hoping for the introduction of an emissions trading scheme by 2010 to boost profitability.

Pacific Hydro said the fall in RECs meant it had put several planned wind projects in Victoria, NSW and Queensland on the shelf.

"It clearly affects your ability to build any new projects," said Andrew Richards, corporate affairs and marketing executive manager. "It's a tough investment environment."

The company had almost $1 billion to possibly invest over five years, but it might look at areas ranging from Chile to Fiji and North America to grab a greater return on investment.

Mr Richards said most Pacific Hydro projects were shielded as they were locked into 10-year to 15-year supply contracts.

Industry consultant Graham Redding said some projects in landfill gas could almost operate without a RECs market.

He thought the prevalence of long-term contracts would protect most businesses.

"I don't think we're going to see any distressed sales," he said.

Wind Prospect, which constructs or operates projects including almost 116MW of power in SA, said the biggest issue was that renewable energy targets were going to be met.

Managing director Michael Vawser said this would affect viability of Australian operations, so Wind Power was examining Asia-Pacific ventures.

Petratherm, considering tapping geothermal energy in South Australia, was confident of remaining viable with RECs at current levels.

"The economic modelling suggests we can produce power in the low $40 range," Petratherm CEO Peter Reid said. "Geothermal only needs a small REC to make it pay."

Geodynamics, aiming to tap underground power from hot rocks, said RECs would be limited but was seeing opportunity on the horizon with growing demand.

The Government was sending a lot of "clear signals" about new initiatives which would support renewable energy projects, managing director Bertus de Graaf said.

He cited Geodynamics recently being awarded a $5 million federal government grant as an example.