Regulation could raise power prices: Spark
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.
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.
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."
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.
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