As global investors increasingly turn their focus towards sustainable investments, Australia’s renewable energy sector presents both promising opportunities and daunting challenges.
Recent policy developments, from the opposition Coalition to potentially “cap” renewable energy investment if elected, have cast a shadow of uncertainty over the industry’s future, prompting calls for stability and clear direction from policymakers.
Say “no” to caps
In an exclusive interview with ecogeneration, Marilyne Crestias, Clean Energy Investor Group’s (CEIG) Interim Chief Executive Officer echoed the industry’s sentiments, emphasising that “substantial changes of policy direction would risk derailing the momentum we have built for Australia’s decarbonisation journey”.
Crestias warned that proposals from the opposition Coalition introduce detrimental uncertainty to the industry.
In a recent survey of CEIG members, every single respondent agreed that policy and regulatory uncertainties influence their investment decisions and project timelines.
This hesitation could lead to delays in crucial projects and higher costs for consumers in the long run.
“Imposing a cap on renewable energy investment at this critical juncture would be a regressive policy that would introduce substantial sovereign risk and dampen the global attractiveness of Australia as a destination for clean energy investors,” Crestias said.
“Billions of dollars in renewable investment decisions have already been made in Australia, based on the current stable policy environment.”
However, Crestias said the sudden change of policies, as proposed by the federal opposition, would undermine the foundation of Australia’s clean energy environment, and the consequences would extend far beyond just domestic impacts.
“Wavering on Australia’s established emissions reduction targets signals instability in our commitment to the renewable energy future that is essential for attracting the global capital required to achieve our climate goals,” Crestias said.
“Clean energy investors seek policy certainty, and abrupt changes hampering the economics of their capital-intensive projects will inevitably see that investment flow diverted to other markets.”
The key to unlocking potential
According to Crestias institutional investors are emerging as crucial players in Australia’s clean energy transition.
These financial entities, with their substantial global capital pools, are poised to provide the megawatt capacity essential for Australia’s future electricity supply.
“Institutional investors represent the largest pools of global capital, ready to deliver the megawatt capacity needed to secure Australia’s required future electricity supply,” Crestias said.
This influx of capital not only addresses Australia’s energy needs but also introduces new competition to the National Electricity Market (NEM).
Crestias said that for the first time since the vertical integration resurgence in the 2000s, institutional investors are challenging the NEM “gentailer” oligopoly.
This increased competition could potentially reduce wholesale power prices, benefiting consumers nationwide. Additionally, these investors often have the lowest global investment hurdles, further enhancing market cost efficiencies.
However, significant challenges remain.
Crestias highlighted that regulatory and approval delays as major obstacles for clean energy projects.
“Investors have identified that the primary challenges are regulatory and approval delays, including lengthy processes for environmental approvals, planning approvals, grid connection approvals, and transmission buildout delays,” she said.
These bureaucratic hurdles not only extend project timelines but also introduce uncertainty that may deter potential investors. Crestias said another critical issue is the evolving landscape of market risk allocation. The changing dynamics between generators, government, and networks create complex uncertainties, including concerns over ancillary service costs, negative pricing, curtailment risks, and the impact of government funding schemes and coal closure schedules.
These factors can undermine investor confidence and potentially impede the renewable energy sector’s growth.
To fully leverage institutional investors’ potential, Crestias advocates for a multi-faceted approach.
She said the need for governments to strategically reduce transition risks for emerging technologies while allowing the private sector to lead in established areas.
“The private sector is best placed to be a majority asset owner of established technologies,” Crestias said.
Furthermore, Crestias is calling for supportive policies, funding mechanisms, and incentives to foster a more favourable investment environment.
These measures should aim to mitigate financial risks and align with broader government objectives.
For instance, contracted revenues through mechanisms like the Capacity Investment Scheme (CIS) could provide the stability investors seek, while advancing national energy goals.
Balancing the energy mix
Crestias is confident that a diverse renewable energy portfolio is crucial for Australia’s continued energy security and resilience well into the futre.
“We need a variety of sources of low-cost electricity, such as wind and solar, not just having one technology but a range of technologies available in a variety of locations,” she said.
This strategy is essential for ensuring a reliable energy supply in Australia’s vast and climatically diverse landscape.
The CEIG’s vision for Australia’s energy future prioritises proven, scalable renewable technologies, excluding nuclear energy.
“Directing resources towards nuclear energy development does not align with the urgency of transitioning to cleaner energy sources in a timely and cost-efficient manner,” Crestias said.
Energy storage solutions, such as batteries and pumped hydro, are critical components of a balanced energy mix.
These technologies, along with strategic investments in transmission infrastructure, are vital for managing the variability of renewable sources and ensuring grid stability.
The recent approval of offshore wind farm zones, particularly off the Illawarra coast, marks a significant milestone.
“Offshore wind development will support the National Electricity Market in achieving the step change scenario outlined in the Australian Energy Market Operator Integrated System Plan.” Crestias said.
This scenario is crucial for accelerating the decarbonisation of the electricity supply sector in line with Australia’s Paris Climate Agreement commitments.
However, the transition to a renewable-dominated energy mix faces challenges, particularly in energy storage financing.
Investors face complex business models with multiple income streams and shorter asset lifespans compared to conventional generation projects, potentially leading to higher risk premiums.
To unlock the full potential of energy storage and attract necessary investment, Australia needs to develop new market structures and revenue streams.
Crestias is advocating for creating new storage-related services that recognise the value of critical grid functions such as inertia, system strength, and voltage control.
According to her, this approach would align with international best practices and foster a more robust ecosystem for storage investment, ultimately supporting Australia’s transition to a balanced, renewable energy future.
Vital steps to renewable future
As Australia stands at a critical juncture in its clean energy transition, Crestias has outlined vital steps to secure the nation’s renewable future over the next five to 10 years.
Crestias is pushing for enhancing the assessment process for renewable energy projects under the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act), and swiftly adopting the Renewable Electricity Guarantee of Origin (REGO) scheme to accelerate decarbonisation and provide investment certainty.
As a result, she is calling for reforms to the Your Future, Your Super (YFYS) framework to unlock superannuation capital for the energy transition, significantly boosting sector investment.
Additionally, she stresses the necessity of certainty around coal-fired power station closures, promoting a balanced approach that combines incentives and regulatory measures, alongside building replacement generation to ensure system reliability and security.
Investment in long-duration storage and expedited network infrastructure development are also crucial.
Crestias said the need for a regulatory framework that supports the fast-tracked approval of multiple projects in parallel.
“Such a plan, underpinned by stable policy, is projected to deliver lower wholesale energy prices in the medium and long term,” she said.
“This will positively impact other sectors, including transport and industry, delivering broader benefits to the wider economy.”
This article featured in the August edition of ecogeneration.
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