Today the Australian Financial Review (AFR) has released a misleading news article which states that ERM Power has chosen to pay the penalty price of $65/LGC instead of paying the current market price of $90/LGC. This article has been released following an ERM Power announcement to the ASX yesterday.
Even at $90/LGC it is more efficient for ERM Power to purchase LGCs then pay ‘penalty price’. ERM are utilising the flexibility of the scheme to surrender LGCs in future years where they can off-set earnings.
ERM Power has a number of tax losses which they want to bring forward by paying ‘penalty price’ (which is not tax deductible) now and using the tax losses for other earnings. Over the course of the next three years, ERM Power is then able to purchase and surrender LGCs and gain future tax credits when they have earnings to offset. This frees up $37 million now which would otherwise have sat as tax credits against future earnings.
The AFR news article can be found here: http://www.afr.com/business/energy/electricity/erm-power-to-pay-123m-penalty-on-renewables-liability-20170123-gtxf6e
The announcement from ERM Power can be found here: http://www.asx.com.au/asx/statistics/announcements.do?by=asxCode&asxCode=EPW&timeframe=D&period=M6