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Regulation could raise power prices: Spark

Lex Hall with AAP  |  27 Aug 2018Text size  Decrease  Increase  |  
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Network operator Spark Infrastructure has warned that further regulatory changes to the energy market risk raising consumer power prices as it increasingly shifts to renewables.

Spark (ASX: SKI), which lifted first-half profit 19 per cent to $58.1 million, on Monday said many of what it called "an unprecedented level of concurrent and overlapping reviews ... seek to undermine the integrity of the regulatory system".

Highlighting the Australian Energy Regulator's proposed rate of return guideline and regulatory tax allowance review, Spark - which operates in NSW, Victoria and SA - said changes could hurt consumers.

Power lines  Spark infrastructure

Spark is committed to the transition to a low-carbon economy

"We are concerned that, in an industry that requires significant investment to transition efficiently to a new energy future and to maintain a focus on energy price affordability, these changes will add considerable risk and uncertainty to the process," chief executive Rick Francis said in a statement.

"These changes and continued uncertainty have the potential to add significantly to cost, and risk negating the good work that our businesses have been doing to reduce network costs."

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Nonetheless, Mr Francis said Spark was committed to the transition to a low-carbon economy.

"We're also seeing continued growth in (NSW network) TransGrid's renewable energy connections business in NSW, and we see this as an area of ongoing investment and growth," Mr Francis said.

"We are not only delivering more affordable network services to customers now but we are also investing wisely to help Australia's transition to a lower carbon emissions footprint for the future."

Spark has also met guidance for an 8 cents per security distribution.

Morningstar analyst Adrian Atkins welcomed the result, saying Spark was tracking ahead of expectations, and trading in line with Morningstar's fair value estimate of $2.40.

However, Atkins says regulatory changes may pose a longer-term challenge for Spark, which he said had made a concerted effort to cut costs in order to recoup attacks on returns.

"The government keeps changing the rules for these kind of companies," Atkins said.

"It has been weakening companies' ability to challenge what the regulator says and that's because the government wants to keep a lid on retail power prices.

"This could be a long-term headwind."

 

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Lex Hall is content editor for Morningstar Australia.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

 

 

 

 

. Lex Hall is content editor with Morningstar Australia

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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