Australian news, and some related international items

Banks won’t back coal plants

This energy may be clean but banks won’t back coal-fired plants, THE AUSTRALIAN, 26 Mar 17 “…..It is no wonder that the government is looking at ways to allow the Clean Energy Finance Corporation to invest in “clean coal”-fired power stations because the banks and the local financial ­sector are unlikely to do so.

The simple reason for this is that investments in such technologies are too risky for any self-interested bank credit officer to give any proposed clean-coal ­project the thumbs up…..

The Australian Prudential Regulation Authority’s Geoff Summerhayes effectively put banks and other financial institutions on notice that he now ­expects them to take into account “transition” climate risks……

offshore banks would face the same risk hurdles as local banks…

What other forms of funding might be available for a clean coal plant? Offshore banks are a possibility and they have backed syndicates investing in local infra­structure, particularly Chinese and Indian banks. The State Bank of India was slated as a potential provider of a $1bn loan for the Adani coalmine in Queensland, but prospects of that loan being approved dimmed when Reuters reported a bank source as saying “the credit guys are not comfortable with the project”.

This is a salient reminder that offshore banks would face the same risk hurdles as local banks.

Another possibility is that ­private sector superannuation funds or the federal government’s ­Future Fund could provide backing. But they need to confront the big stick from APRA or the Australian Securities & Investments Commission about the need to take into account climate change and associated sovereign risk.

That seems to leave only the government to finance any such projects and, hence, the idea of changing the Clean Energy ­Finance Corporation legislation to allow it to invest in clean coal.

But let’s take stock here: haven’t we just imposed a whole swag of new regulations on banks to stop them from getting involved in lending that is too risky? If the risks around clean coal are too daunting for those irritating banks to take on, why on earth would the taxpayer do so?

Taking into account all of these risks, coupled with the difficulty in offsetting them via the market or through portfolio diversification, and the multitude of uncertainties surrounding any proposals for a clean-coal generator, we should assume that no bank funding will be forthcoming for clean coal- fired power stations.

Rob Henderson is a policy and markets economist and formerly chief economist (markets) with National Australia Bank.

March 27, 2017 - Posted by | AUSTRALIA - NATIONAL, business, climate change - global warming

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