Investor confidence soars in Australia's renewable energy

5 minute read  03.05.2021 Simon Scott, Joel Reid

Despite local challenges, market sentiment for the Australian renewables sector is returning to positive.

The 2021 Australian Renewables Report, published by MinterEllison and Acuris, reveals positive signs that investment is returning to the renewable energy sector in Australia.

Domestic and International investors were surveyed and both groups are positive about the outlook for Australian renewables. Nearly two-thirds (65%) of investors say they will increase investment in the next 12-24 months, with another 20% saying their current level of investment will remain unchanged.

Scales tip to renewables

Australia’s safe haven credentials are a key attraction to international investors. However, domestic investors, keen to move before foreign investors, remain the most enthusiastic, with 83% of Australia-based respondents planning to increase the amount they invest. Investors from Asia Pacific plan to increase their investment by 77%, a considerable increase on 45% in 2019.

While 2020 was certainly a challenging year for dealmakers – following Australia’s “black summer” bushfires and the COVID-19 health crisis quickly thereafter – it was also a year in which the scales tipped decisively in favour of renewable energy.

Financing and investment environment favourable

The survey shows that Australia ranks high among the countries offering the most supportive financing environment for renewables with 87% of respondents predicting that Australia will have the most supportive environment in 12 months’ time versus 68% today. This performance is comparable with the likes of major renewables markets in Europe (Germany) and North America (Canada).

One of the positive factors shaping the renewables financing environment is the growth of ESG lending and investing. 2020 was a year in which some domestic and overseas banks and financial institutions reappraised lending on fossil fuel projects – while backing renewable energy projects.

Which of the following corporate/financial sponsor groups do you expect to be the most active in the Australian renewables market in the year ahead?

State governments mobilising investment

Also, 2020 saw state and territory governments roll out ambitious programs to stimulate renewable energy. In Western Australia, for example, the state government has brought forward its renewable hydrogen target. Meanwhile, New South Wales has pledged to make the state a renewable energy superpower and has mandated the construction of 12GW of clean energy and 2GW of storage over the next ten years – potentially unleashing AU$32bn in private investment.

The confidence in Australia’s renewable energy sector is strong but continues to face challenges in accessing a grid that has been developed at an earlier time for a thermal-based generation fleet. Improving our network issues – which could be assisted by the development of renewable energy zones in various Australian jurisdictions – will remove a significant risk for investors and their financiers.

Momentum for energy-storage technologies and hydrogen

However, it is clear that momentum is building behind firming and storage technologies that make better use of existing grids. Battery deployments have moved further and faster than expected with Victoria’s recently proposed mammoth 300MW Tesla battery near Geelong slated to be among the biggest in the world.

 

Hydrogen is less dependent on grids and paves the way to lucrative energy exports
 

 

Meanwhile, interest in green hydrogen is growing. Hydrogen is less dependent on grids and paves the way to lucrative energy exports. All of this bodes well for the future of utility-scale renewables.

Find out more in our report: Tapping the potential of Hydrogen in Australia.

Within the next 10 years, as existing thermal generation reaches the end of its life, what will most likely meet system reliability requirements in Australia

 

Overall, international and domestic renewables investors are confident in the market, with positive sentiment pointing to a robust year ahead. Indeed, 65% say they will increase investments as they search out clean energy opportunities in Australia. Also, while some investors sat out 2020 amid the COVID-19 health crisis, half (50%) have charged ahead with investments and another 35% will return to the market within the year. Australia’s vast energy market continues to inspire – and the outlook has never looked better.

Mining and agriculture industries turn to renewables

Australia’s vast agriculture and natural resources industries stand to benefit from renewables as both sectors increase their adoption of renewable solutions.

We are seeing miners rethinking their operational processes and existing power supplies to invest in and integrate renewable energy sources. The benefits of investing directly in solar and wind power and smart storage, or otherwise buying green power, are clear: to drive down energy costs, curb emissions, improve safety, and lessen investor scrutiny.

Australia’s agriculture sector continued to grow throughout 2020, despite disruption caused by the pandemic. Agribusiness is currently worth AU$60bn, but this is expected to climb to AU$100bn by 2030.

Like mining, the agriculture sector is a significant energy user. For example, processes such as water pumping, desalination and temperature control in greenhouses require huge energy inputs. In addition, the need to be on-grid limits the range of locations available for some types of farming activity.

Investors are clear that renewable energy will play a critical part in delivering this growth: 80% of respondents in our recent report on Australian agribusiness (Ahead of the Harvest: 2020-2022) said that increasing use of renewables would have a positive impact on the industry’s growth, with 39% saying that renewables will have a transformative effect.

This article first appeared in ANZ BlueNotes in April 2021.

 

Positive outlook for investing in Australian renewables

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https://www.minterellison.com/articles/investor-confidence-soars-in-australias-renewable-energy

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