International and domestic investors remain positive about the outlook for renewable energy investment in Australia with three-quarters expecting to increase their investment during 2023 and beyond with supportive Government policy settings key to boosting confidence, according to a new report from MinterEllison and Mergermarket: Australian Renewables Report 2023.

Australia’s renewable energy sector is attracting substantial interest from a wide variety of interested parties, from strategic investors, ESG-focused funds, OEMs and traditional energy providers looking for transitional assets.

Competition for assets which have supply arrangements and a grid connection secured have no shortage of interest.”

Andrea Frank, Partner, MinterEllison

The Australian government’s goal to generate 50% of electricity from renewable sources by 2030 provides a stable and supportive regulatory environment and investors expect government policies at state and federal levels to become more supportive over the next 12-24 months with 85% of investors say federal and state policies will be supportive or very supportive toward the renewables sector in 2023 and beyond. Very few investors felt Australia’s governments would lack support in the near future and 72% say government renewable and emissions reduction targets are a key strength.

New South Wales’s longstanding record of backing renewables along with the support of renewable energy zones has made it the most attractive investment location for future investments for 60% of investors.

New South Wales remains a key market. The Renewable Energy Zones, particularly Central-West Orana and New England, will provide the backbone for massive forward investment in generation, firming and storage, and provide a clear investment signal,”

Simon Harvey, Partner, Minter Ellison

“The LTESA option product is innovative, acts as insurance against downside pool price scenarios, and potentially both increases bankability and delivers a superior outcome for consumers,” he added.

Mergers and acquisitions will continue to be a key driver of future trends with half respondents (52%) saying a bolt-on acquisition was among the main objectives of their most recent deal, along with 50% who point to growth through acquisition.

Oil & Gas investors who want to decarbonise their activities are active and more than 10% of renewables deals by volume in 2022 had oil company backing.

“The M&A landscape for Australian renewables is strong, buoyed by the announcement of renewable energy targets, the scheduled shutdown of coal-fired generators and a supportive Federal government policy environment,” said Andrea Frank.

Recent renewable energy investments in Australia yielded the intended value from the deal or met the business objectives of 65% investors. And while, 97% of investors see PV solar and hybrid batteries presenting the most investor opportunities, the biggest jump over 2021 was in Biomass/Biogas/Waste-2 energy where 83% of investors see the most opportunity, up from 59% in 2021.

Challenges

Valuations being too high has risen to replace regulation and incentives concerns as the top challenge facing renewables investors. There was a notable jump in respondents who think valuations are too high with 73% now citing this as a concern versus 55% from two years ago.
Adding to this is the need to factor in the long-run implications of inflation – now at a near 40-year high in Australia, as elsewhere.

“Investment challenges remain, not least those posed by inflation and high interest rates, But, as our study shows, investors are facing up to the headwinds and are ready to seize the opportunities that lie ahead," said Simon Harvey.

Financing challenges may likewise create obstacles. More than half of respondents (53%) hold this view and most respondents (91%) agree that new financing and refinancing for renewables projects will become more difficult in the year ahead.

Summary of top findings

• Government policy settings provide confidence to investors. 85% of investors say federal and state policies will be supportive towards the renewable sector. Notably, NSW is the most attractive investment location for 60% of investors, followed by Victoria.
• Almost three-quarters (74%) of global and domestic investors will increase investments in Australian renewables through 2023 – a noticeable uptick from 2021 (65%) and 2019 (68%).
• 91% of investors expect investment from Asia Pacific to increase in the next 12-24 months with Japan the most active investor. 83% nominated increased investment from Europe (and 57% nominated increased investment from North America.
• Recent renewable energy investments in Australia yielded the intended value from the deal or met the business objectives of 65% investors.
• Although investors see PV solar and hybrid batteries presenting the most investor opportunities, 83% of investors see the most opportunities in Biomass/Biogas/Waste-2 energy (up from 59% in 2021) along with it being seen as a safer bet than in 2021.
• 40% expect hydrogen to catch up with expectations and/or reach maturity within one to two years. Notably, one in every six deals transacted in 2022 in the Australian renewables M&A market involved assets linked to hydrogen production.