Kept in carbon limbo

Energy Developments boss Greg Pritchard must feel more like a full-time lobbyist than a company CEO.

For the past six months, Pritchard has made Canberra pretty much a second home as he tries to convince politicians and bureaucrats to tweak the planned emissions trading scheme to include the generation of energy from landfill methane. And his shareholders have a lot riding on it.

For the past several years, Energy Developments has been able to generate credits – and therefore, extra income – from its power generation from landfill methane, under the NSW Greenhouse Gas Abatement Scheme. Such operations are able to generate some sort of credits in just about every major western economy.

The problem is, under the federal government's proposed Carbon Pollution Reduction Scheme, as it currently stands, landfill gas – like coal mine methane gas – is not included. So Energy Development's Australian operations will progress from having a carbon credit to carrying a potential carbon liability.

Worse, the transition arrangements between NGACS and the CPRS are not known, and now it is not even certain whether companies such as Energy Developments will qualify for compensation as had previously been foreshadowed.

So while Pritchard has been chasing his tail in Canberra trying to convince people that his company's efforts to abate 1.3 million tonnes of CO2 equivalent should be rewarded rather than penalised, the market has given its one typical response to uncertainty, and that's to give it a minimal valuation.

Now Pritchard has an offer from a buyout consortium led by Archer Capital to deal with. It values the company at around $750 million on an enterprise value and, as you might expect, does not factor in the value of carbon credits.

This puts Pritchard and fellow directors in a bind. This week, they were able to demonstrate the potential value of the company's portfolio when they announced that an offer from another buyout group had valued the UK and French landfill assets at $280 million – one third of the company's value, even though it only accounts for 13 per cent of its generation capacity and 20 per cent of its EBITDA.

But for how much longer can they hold the Archer consortium at bay, while the politicians get their act together? And on what basis might they be able to negotiate a compromise price?

Energy Developments is not the only clean energy group having its values trashed and its ambitions thwarted by the political squabbling that has bastardised and now delayed the CPRS.

Hastings Funds Management bought Envirogen just over a year ago, but grand plans for an up to five-fold expansion of its generation assets, powered by coal mine methane gas, are likely to come to nought unless they are included in the CPRS. Even the economic viability of its current operations are being brought into question.

Likewise, the plans and ambitions of a whole raft of clean energy developments, not to mention dozens of potential abatement schemes, are being kept in limbo by the delays and uncertainty around the future of the CPRS and the renewable energy target (RET).

Who knows how long those delays will extend. There is a school of thought that the Liberals will come to the party with some agreement when parliament returns in August, because internal polling shows marginal seats are at risk by the party's failure to enunciate a clear policy on the issue.

But Labor might not take voter approval for its climate efforts for granted if it came to a poll.

The electorate is clearly demanding action, but the government has delivered little in its first 18 months. The RET should have been a no-brainer, but has become a political tool. The CPRS is a mess – and apart from a grand plan to spend big on carbon capture and storage and large scale solar (albeit in five years' time) there has been precious little in direct assistance, or legislation, favouring tighter emissions controls and energy efficiency targets.

Contrast this with the US, where despite an estimated $US400 million spent on lobbying, a climate change bill is scheduled to work its way through Congress just 5 months after the new Administration took control.

Its initial target of a 17 per cent cut in emissions by 2020 is below what some had hoped, but it is still a transformational package. It commits to a reduction of 80 per cent by 2050 and is expected to generate trillions of dollars of investment in clean energy and abatement technologies.

In Australia, the investment flows into clean energy slow to a trickle while politicians fret about being a 'world leader'.