A high-level Government taskforce is investigating claims from the electricity generation sector that the CPRS will compound the impact of the financial crisis and problems in the regulation of the National Electricity Market.

In April, the Energy Supply Association of Australia released a report claiming the sector faced a $100b refinancing and investment bill and needed more free permits than currently provided under assistance arrangements in the Government’s ETS bill before Parliament.

The Secretary of the Departments of Prime Minister and Cabinet (Terry Moran), Climate Change (Martin Parkinson), Resources, Energy and Tourism (John Pierce) and a Treasury Deputy Secretary are now exploring the sector’s concerns with individual companies. ESAA is understood not to be involved in the discussions.

The Department of Climate Change has previously considered the impact of the CPRS on energy security issues and found there was no basis to some of the wilder claims from the sector that the CPRS would force the shutdown of power plants.

“We’re trying to tease out the impacts of three issues on the generation sector,” Parkinson told Crikey. “The generators have identified the confluence of the global financial crisis and its impacts on their cost of capital, some aspects of the operation of the National Electricity Market, and the CPRS, as potentially affecting them significantly. We’re working through those with the sector.”

The generation sector will receive nearly $4b over five years in assistance under the Electricity Sector Adjustment Scheme as part of the Government’s ETS. The biggest recipients will be the UK’s International Power, Hong Kong’s CLP Power International, Japan’s Tokyo Electric Power, the NSW and Queensland Governments, and AGL. However, the sector insisted in April that it needed more free carbon permits.

International Power has been particularly plaintive, demanding a trebling of the $1.1b assistance it will receive and writing to the Prime Minister in February warning that the CPRS offered “fundamental uncertainty” for the company. The company’s May interim management statement to investors, however, merely noted “we will continue to engage with government on scheme design and implementation.”

The inadequacy of assistance for electricity generators compared to the long-term support proposed in the US has also been singled out by the Coalition as one of its objections to the Government’s ETS. One conspiracy theory doing the rounds is that the Government will let itself be dragged by the Coalition to providing greater handouts to the sector as part of a deal to pass the bill.

Given Malcolm Turnbull’s parlous state, however, the Government is unlikely to be in any mood to give him a win on the issue most likely to split the Coalition down the middle.

It is also understood that the Secretaries’ taskforce is unlikely to recommend further CPRS-related assistance for generators. The sector’s fundamental problem is seen as stemming from the financial crisis and the higher cost, and lesser availability, of capital that the sector now faces – a problem a few extra free carbon permits is unlikely to remedy.

Nevertheless, the Government appears keen to ensure its CPRS cannot be blamed for the sector’s difficulties as it moves to refinance and undertake capital investment.