Investors remain ready to back renewable projects, survey finds

Share

Sydney headquartered MinterEllison has released a wide-ranging international survey that found that renewable energy investors stand ready to increase their activities in the next two years. Australian renewable greenfield projects are particularly sought after, with U.S. investors most likely to play an increasingly active role in the marketplace.

MinterEllison and M&A intelligence provider Mergermarket released their Australian renewable energy investment trends and outlook 2019 report last week, which reads very well for the renewable energy industry at large. “It’s going to be an exciting 12-24 months for the sector,” the report’s authors write, “but it’s critical that industry players channel their efforts to take advantage of the great prospects investors have identified.”

The report, which surveyed 100 Australian and international renewable energy investors, found that 68% of Australian and foreign investors will increase their investments in Australia’s renewable sector in the coming year. 22% of investors reported that they would continue with their current portfolio, and none of the respondents are planning to reduce their investments. These results are clear evidence of the local and international confidence in the potential of renewables in Australia.   

Surprisingly, coming off the Liberal-National victory in the federal election last month and an inability for the country to develop a consistent energy policy, 81% of respondents believe that Australia’s most appealing advantage as a place of investment in renewables is its political and regulatory stability. In all likelihood the strong stance of state and territory governments is going some way to compensate for the uncertainty at the federal level. 

Interestingly, the most politically hopeful of respondents were Europeans, whilst Australian respondents to the survey were far more pessimistic about government policy with only 36% finding government policy supportive. 

MinterEllison believes the disparity could be due to the fact that European renewable investors are more experienced and have thus concluded “that while supportive policies are desirable, the plummeting cost of renewable energy means that government indifference is no longer a deal-breaker. Solar costs per megawatt hour, for example, are now three times lower than a decade ago.”  

Australia’s climate (78%) was a close runner-up in terms of what makes the country an appealing destination for renewable investment, followed by legal certainty (74%). The survey also placed Australia alongside the United States and Germany in the top three countries with the most attractive financial settings for renewable investment. 85% of investors believe the strength of renewable projects will continue to see banks willing to lend. 

The attractive features highlighted in the MinterEllison survey suggest that the fundamentals for Australian renewable investment remain good. The report’s executive summary reads: “As an inbound market, foreign investors are especially hopeful. Many are looking to Australia as saturation in their home markets pushes them further afield, using partnerships and strategic alliances to buy and build assets.” 

66% of survey respondents noted opportunities in Australian greenfield renewable projects.  However, the flip-side is that Australia’s abundant wide open spaces bring with it grid capacity and transmission challenges – with suitable sites often remote from sources of high electricity demand. 58% of respondents found the transition to a renewables-based grid would prove a major hurdle. These concerns were most distinctly felt by Asia Pacific investors (65%). 

Sources of investment

The majority of foreign investment is set to come from the United States, China and Germany. With the strength of the U.S. dollar, the reduction in U.S. tax incentives for renewables and higher import tariffs, U.S. investors are looking to Australia in this coming year. 84% of respondents believed North America would lead foreign investment into the Australian renewables market in the next 12 months. 

Looking at the particular forms of renewable energy, 86% of respondents reported that energy storage is the sub-sector with the most opportunities, closely followed by thermal solar (82%) and solar PV (79.8%). And despite recent headlines, hydrogen was viewed by respondents as the riskiest sub-sector for investment.

However, respondents identified several key areas upon which the success of solar investment in the coming year depends, these areas revolve closely around easing pressure on the grid, including the necessity of developing renewable energy hubs, transmission infrastructure and interconnection. 

MinterEllison agrees with the confidence shown by the survey’s findings, noting that Australia’s transition to renewables in the near future is an enormous opportunity. For one thing, Australia gets almost two-thirds of its electricity from coal-fired generators, double the OECD average, but many of these power stations are nearing the end of their lifecycle.

Author: Blake Matich