Tax on coal, gas and new investment

The Private equity company EIG Global Energy Partners is betting big money on gas, offering $18.4b for Origin Energy is which was a ~55% premium relative to its last close price. This premium suggests EIG Global Energy Partners believes gas will set price as the Chairman of EIG stated, “it is willing to ignore government threats of export controls and price caps and invest in Australia for the next 20 years because it believes the nation’s gas resources will play a crucial role in the transition to clean energy”.

As federal politics look to potentially intervene in the domestic coal and gas markets, the investors do not appear to be concerned. It seems the thought process is that gas is a sound investment for the next 20 years as we transition to renewables. No doubt they will be keeping an eye on the regulatory environment but with a track record of investments in the UK and German markets where market inventions are currently enabled, they are in a good position to understand the risks and rewards.

As Origin owns a fleet of gas generators that traditionally operate over the periods where electricity prices are at their highest, it puts them in a position to take advantage of the market, producing and selling electricity at high market prices securing a nice profit.

As entry to the industry and source project finance is difficult, Origin’s gas turbines will have time to continue to produce electricity and make money at these heightened energy prices. With new investment being stalled due to funding constraints pressure on electricity prices will continue to occur.

The question for investors, politicians and the public is, do you view gas as the transitional fuel to renewables? While investors may see a distinction between gas and coal, do the end users of electricity hold similar assumptions?

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TAX ON ELECTRIC VEHICLES (EVs)

The Victorian government has introduced a Zero Emissions Vehicle (ZEV) Subsidy. The subsidy is designed to reduce the cost of purchasing an ZEV. ZEV’s, which are more commonly known as Electric Vehicles (EVs) are increasing in popularity and the Victorian government would like to see Victorians choosing to buy an EV sooner. Buyers of electric and hydrogen vehicles will be subsidised with the goal of achieving half of all new cars sold to be zero-emission by 2030.

The subsidy is part of the Victorian Government’s Zero Emissions Vehicle Roadmap, a $100 million plan to fast track the transition to ZEVs. To achieve the 50% ZEV target, $46M of funding has been allocated to support the purchase of 20,000 ZEVs. The first round includes 4000 subsidies of $3,000 to reduce the up-front cost of an EV. Further rounds will subsidise a total of 20,000 EVs over the next three years.

Victorian residents and businesses can apply for the first round of the subsidy, with electric or hydrogen vehicle purchases up to $68,740 before on-road costs eligible for the subsidy. More expensive EVs, hybrids, zero-emission motorcycles or heavy vehicles are not eligible at this stage.

The Victorian government has also committed to buying $10M worth of zero-emissions cars over the next three years, this will equate to about 400 vehicles. $19M of funding has been allocated to building 50 EV charging station throughout Victoria.

Previously, the Victorian Government released plans to tax EV drivers 2.5 cents per kilometre driven each year to counteract the expected loss from fuel excises.

An average driver covers 15,000km each year so, the extra 2.5/Km would cost EV drivers an extra $375 each year on top of registration. These changes will take effect from July 2021.