Investment boom predicted for local renewable energy: MinterEllison
The outlook for investment in local renewable energy is bright, with capital markets making a decisive shift away from carbon-based investments.
The outlook for investment in local renewable energy is bright, with capital markets making a decisive shift away from carbon-based investments as banks and institutional investors retreat from fossil fuels, according to MinterEllison.
The second annual review of the renewables sector by the top-tier law firm found that 65 per cent of international and domestic investors planned to increase investment in 2021.
Also, while some investors stayed on the sidelines last year due to COVID-19, half had now proceeded with investments and a further 35 per cent would return to the market within a year.
“Australia ranks high among the countries offering the most supportive financing environment for renewables,” MinterEllison energy partner Joel Reid said.
“Of the respondents, 87 per cent predict that Australia will have the most supportive environment in 12 months’ time compared to 68 per cent today.
“This performance is comparable with the likes of major renewables markets in Europe (Germany) and North America (Canada).”
The law firm asked 100 local and overseas investors for their insights into the renewable energy sector.
While 2020 was a challenging year for deal-makers, with the summer bushfires quickly followed by the pandemic, it was also a year in which the scales tipped decisively in favour of clean energy.
MinterEllison pointed to a number of factors, including an enthusiastic embrace of renewables by capital markets.
State and territory governments also rolled out ambitious programs to stimulate renewable energy.
In Western Australia, for example, the state government brought forward its renewable hydrogen target, while NSW pledged to become a renewable energy superpower.
The state mandated the construction of 12GW of clean energy and 2GW of storage over the next 10 years, potentially unleashing $32bn of private investment.
The third factor was improvement in storage technology to make better use of existing grids.
Battery deployments moved further and faster than expected, with the mammoth 300MW Tesla battery near Geelong among the biggest in the world.
Interest in green hydrogen was also growing, given it was less dependent on grids and could pave the way to lucrative energy exports.
Mr Reid said confidence in Australia’s renewable energy sector was strong but continued to face challenges such as accessing a grid that was 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,” he said.
Renewable energy targets were a feature of both federal and state energy policy, and were seen by investors as key to the development of clean energy projects.
However, the review found there are big differences between federal and state governments in their approach to targets.
MinterEllison ranked the priorities for regulatory reform and government programs to help the development of renewable projects.
Heading the list was state and territory legislation for renewable energy targets, followed by the introduction of a federal carbon emissions scheme, continued government support for renewable projects, and reform of the national electricity market.
The review said one of the factors shaping the renewables financing environment was the growing prevalence of environmental, social and corporate governance principles in lending and investment.
Some overseas and domestic banks, including the nation’s four major banks, had reappraised lending to fossil fuel projects.
MinterEllison said combinations of solar, wind and batteries could hold the key to providing reliable and consistent generation as existing thermal generation reached the end of its life.
The firm said 81 per cent of respondents thought that hybrid solutions combining wind, solar and storage had huge potential for Australia, and risk/reward sentiment was shifting in favour of hydrogen.
“In 2019, 47 per cent of investors said it was an opportunity sector, although 53 per cent said it was too risky,” Mr Reid said.
“This study shows that 49 per cent now see it as an opportunity sector. Notably, just 31 per cent now say it is too risky. In short, positive momentum is building.”
