Investor sentiment in Australian renewables turns to the overwhelmingly positive!

A new report released today by law firm MinterEllison, and based on the opinions of 100 renewable energy investors, finds that investors are overwhelmingly positive about the outlook for Australian renewables, and that solar PV, with or without firming, is viewed as the technology most likely to meet system reliability requirements in Australia as existing thermal generation retires over the coming 10 years.

Almost two-thirds (65%) of investors canvassed in MinterEllison’s second annual Renewables Investment Report say they will increase their investment in Australian renewables in the next 12-24 months, and a further 20% said that their current level of investment will remain unchanged.

On the slim down side, 63% of investors continue to cite instability around Australia’s incentives for renewable energy development as the main risk/challenge to investing in the country’s renewable infrastructure.

“This uncertainty does not facilitate smooth planning and diversification for investors,” the Director of Corporate Development and Investments at an Australia-based energy company is quoted as saying.

The head of mergers and acquisitions (M&A) at a Netherlands-based energy company adds: “The instability surrounding incentives and the take in different states is not inviting for foreign investors.”

That said, MinterEllison Energy Partner, Joel Reid, extracts from the figures that 87% of respondents predict that Australia will have the most supportive environment for investment in renewables in 12 months’ time, versus 68% who hold that opinion today.

Reid says, “This performance is comparable with the likes of major renewables markets in Europe (Germany) and North America (Canada).

Nothing/everything has changed

Regulatory complexity, constrained access to the grid and lack of availability of EPC contractors were ranked, in order of mention, as the next greatest challenges to investors.

The report acknowledges that renewables investment over the past two years has shown a significant reduction: from $17.1 billion across 49 transactions in 2018 to $3.8 billion in 20 deals in 2020. It says “grid integration problems and transmission losses may be among the reasons for this declining investment”.

However, the report also suggests that some of the biggest projects proposed over the past two years — such as the 10 GW SunCable Solar and Battery Project in the Northern Territory, the 26 GW solar-wind Asian Renewable Energy Hub in the Pilbara, and WA’s 1.52 GW Oakajee green hydrogen hub in the midwest of the state — are evidence that the lack of conventional grid access may be spurring innovation.

“What makes projects like these so interesting is that they do not, primarily, depend on existing grids to make money out of renewable energy,” posits the report. It continues: “New subsea cables to Asian markets, hydrogen (liquefied or converted to ammonia) and mass battery storage are key elements in the emerging megaproject story.”

Forty-nine percent of respondents foresee that hydrogen will become more of an investment hotspot in 2021, with 69% saying that developments in Australia’s hydrogen economy will cross an inflection point in the year ahead.

Solar soaks up the appreciation

In the meantime, solar PV (chosen by 94% of investors) and offshore wind (83%) have this year ranked as the most attractive prospects with the lowest risks (solar PV is seen as having no risk) for investors.

The report says that “respondent sentiment reveals a significantly greater awareness of the need for firming when compared with our 2019 survey,” and suggests that this finding “underlines the growing maturity of the renewables sector and its willingness to shoulder more responsibility for providing reliable, consistent and resilient power supplies”.

Grid-scale batteries were identified by respondents as the third most likely technology (after standalone solar and wind with firming technology to meet near-future system reliability requirements. And demand management ranked fourth — arguably an even greater sign of maturity in the market.

Unpumped hydro and heroic hydrogen

It’s not clear whether Snowy 2.0 is regarded as “New pumped hydro”, which ranked third-last among the most reliability-boosting technologies — ahead of extending the life of existing thermal generation and new coal-fired power at rock bottom.

Hydrogen is increasingly viewed as an opportunity for investment, after having been ranked as risky in 2019. It’s especially interesting, says the report “for its potentially symbiotic relationship with renewable generation”.

MinterEllison says that deploying renewable generation, electrolysers and fuel cells on the same site therefore has the potential both to minimise curtailment risks and to provide flexible load and frequency services to the grid — in short, “hydrogen could provide a way of getting around grid access issues”. 

The Director of Corporate Development at an Australian energy company is said to represent the views of many respondents in saying, “Hydrogen has more opportunities” for investors, who “can invest in the earlier stages of a project for valuable returns.”

Renewables in agriculture and mining add up to sustainable growth

MinterEllison also draws on its recent report, Ahead of the Harvest: 2020-2022, in assessing the prospects for investing in renewables for agriculture, asserting that this primary industry could reach new levels of growth and development with increasing adoption of renewables

The value of agribusiness to the Australian economy is expected to increase from the current $60 billion to $100 billion by 2030. Respondents to MinterEllison’s agriculture report believe that renewable energy has a critical part to play, with 80% saying that renewables would have a positive impact on the industry’s growth and 39% saying that renewables will have a “transformative effect” on agriculture.

Mining, which accounts for a fifth of Australia’s energy consumption, is also identified as a hot prospect for renewable energy investment.

Simon Scott, Energy and Resources Lead at MinterEllison, writes, “Most miners are 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.”

2020, the year that changed us

Scott sees 2020 as the year in which “the scales tipped decisively in favour of clean energy”, the year in which capital markets shifted away from carbon-based investments, and which saw natural disasters and Covid-19 prompt state and territory governments to “roll out ambitions programs to stimulate renewable energy” in tandem with the economy.

“Overall,” writes Scott in his foreword to the report, “international and domestic renewables investors are confident in the market, with positive sentiment pointing to a robust year ahead.”