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Origin’s CEO questions renewable energy targets

The complicated issues surrounding Australia’s future energy security, carbon pricing and renewable energy targets (RET) continue to swirl. As reported in the Australia Financial Review after this week’s AFR & Macquarie Future Forum on Energy, Mr Grant King, the CEO of Origin Energy (ASX: ORG) has called for the government to review the RET legislation.

Mr King’s concern is that the fall in carbon pricing is leading to a divergence between the policy for carbon and the policy for renewables. Mr King pulled no punches, stating that the RET legislation is unrealistic and “needlessly pushing up energy prices and adding to sovereign risk in Australia.”

AGL Energy’s (ASX: AGK) CEO Mr Michael Fraser, who has aggressively moved AGL into the renewables space, also reportedly shares some of King’s concerns, particularly surrounding the achievability of the RET legislation. The legislation calls for 20% of total electricity supply to come from renewables by 2020, but for a multitude of reasons, including the earlier proposed move to a flexible carbon price and a drop in demand, this is unlikely to be met.

Meanwhile Infigen Energy (ASX: IFN), which has interests in numerous wind and solar farms both in Australia and the USA, defended the RET legislation and took issue with comments by Mr King that ‘green charges’ can now account for up to 30% of an electricity bill. Mr King in response argued that “consumers are unaware just how much the legislation is costing them.”

While the report from the Forum on Energy certain gives investors plenty to think about in terms of energy policy in Australia, a separate article in the AFR perhaps provides more immediate attention by Origin’s shareholders. The article reignites speculation surrounding Origin’s full year earnings for both 2013 and 2014 with the suggestion that some analysts have increasing doubts that Origin can meet its already downgraded full-year target.

Foolish takeaway

The energy sector in Australia is incredibly complicated to analyse at present, not least because of constantly changing legislation and opposing proposals by the major political powers. Given the long lead times in developing energy projects, companies need certainty. The short three-year political cycle certainly doesn’t help either when long-term planning is required.

Despite the current political issues, with a growing population and the increasing opportunities for the export of natural gas, the long-term economics of energy investment are appealing and potentially worth the headache that comes with gaining a deep understanding of the sector.

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Motley Fool contributor Tim McArthur owns a share in Origin Energy.

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