New investment commitments in large-scale renewable energy projects have collapsed by more than 50 per cent according to new analysis by the Clean Energy Council, which reveals a fall from 51 projects worth $10.7 billion in 2018 down to 28 projects worth $4.5 billion in 2019. We caught up with Clean Energy Council Chief Executive Kane Thornton to understand what this downturn in investment means for the industry, and gain insight into how we can turn the current situation around.
The new research from the Clean Energy Council shows that while the strong flow of projects that were committed in 2017 and 2018 are now coming online, the pipeline of new projects commencing construction has dropped significantly due to the stalling of commitments in 2019.
Clean Energy Council Chief Executive Kane Thornton said mounting regulatory risks, under investment in transmission and policy uncertainty have contributed to increased risks for investors, and resulted in a lowering in confidence and slow-down in investment commitment for large-scale renewable energy projects.
“What this data tells us is that there’s a slow down in new investments, and that is starting already to trickle through the industry,” said Mr Thornton.
“As the current wave of projects under construction reach completion, there is going to be, and there is already, a slowdown in the level of construction activity within the industry.
“Ultimately, that will mean less work, less jobs in the industry, and essentially less activity at the large-scale side of the industry.
“A continued slow-down in new investment will put greater pressure on reliability and power prices as Australia’s old coal-fired power stations continue to close. New investment is critical to replacing these coal-fired power stations and delivering on Australia’s emission reduction targets.”
Investor confidence
This reduced investment confidence was reflected in the Clean Energy Council’s recent Clean Energy Outlook Index, which revealed a clear fall in investor confidence in the sector.
The top reasons for a decline in investor confidence were grid connection issues, a lack of strong national energy and climate policy, and network congestions and constraints.
Many of the rules relating to grid connection, network investment and market design are no longer fit-for-purpose, and are a significant deterrent to potential investors.
“These issues need to be resolved urgently if Australia hopes to attract investors and ensure the necessary level of new energy generation capacity.”
According to Mr Thornton, the results that are gathered through the Clean Energy Outlook Index reflect what he hears anecdotally from key players in the industry.
“Recently I met with an international company that’s been very active here in Australia. The message from them is that when they tally up all of the different challenges they now face in Australia, such as policy uncertainty, when you add all of that up together, it just adds uncertainty and adds risk.
“These investors are sitting there with a pipeline of projects right around the globe, and they want to invest in Australia, we’ve got great renewable resources, but we are a higher risk option than any number of dozens of countries around the world where, to be frank, their policy makers and regulators have worked harder in preparing for this moment in time, and things are smoother. They can manage their risk, and they work through risks more easily than they can in Australia at the moment.”
What can we do?
So in the face of ongoing federal policy inertia, which doesn’t look like changing any time soon, what can the renewable energy industry do to bolster confidence and try and get the industry moving?
Mr Thornton says it’s important to note the work that state and territory governments around Australia are currently undertaking, with the ACT, Queensland and Victoria being particularly obvious examples.
“We’ve seen a number of state governments step into the market to provide policies and to provide that certainty, and I think that does help to prop up the current level of investment.
“It’s not ideal, we’d rather it be done nationally, and in a coordinated fashion. But there are opportunities there.”
For Mr Thornton, the other obvious area for the renewable energy industry to tap into is the corporate market. As we see more and more large corporates becoming frustrated with the lack of a clear, national energy policy, increasingly these businesses are looking to procure and secure their own energy supply from renewables.
“The Power Purchase Agreement market is something that’s growing,” said Mr Thornton. “And with businesses like Telstra, BlueScope and Sun Metals all looking to secure their own renewable supply, it obviously presents an opportunity for renewable developers.
“The silver lining to our recent research is that we’ll continue to see projects go ahead at some rate – not an ideal rate, but at some rate anyway.”
Short-term pain, long-term gain
The other thing Mr Thornton is keen to point out is that while the current level of investment has fallen, the long-term future for renewables investment is very bright.
He points to a raft of new investment that is coming for the transmission side of the industry, which will allow for the increased uptake of renewable technologies.
“My assessment is that while the short term is going to be a bit challenging, the long-term outlook is very bright,” said Mr Thornton.
“It’s very bright because of the fundamentals. The cost of renewables has come down, our old coal fire generation is old and getting older, and there’s an inevitability about coal coming out of the market.
“And finally, despite a decade of climate policy wars, the climate change issue hasn’t gone away, and in fact it’s become more serious. There’s an inevitability about Australia having to reduce our emissions. We know that renewable energy is where the heavy lifting has been done, and can be done in the future.”
Mr Thornton points to the horrific summer bushfire season as further evidence of this.
“The Australian public I think have seriously awoken to the reality of climate change in a way that I don’t think they might have previously.
“The community, and the business world, are both realising the damage and the risk from climate change, and very clearly, I think that’s shifting behaviour. That’s about the purchasing decisions that are made, the grassroots movements, the decisions by big business, right through to the ballot box into the future.
“There’s a shifting of sentiment around climate change. The Australian public likes renewable energy, and they want more of it. We’re going to see that increasingly shift to drive our political leaders to get onboard in a way that they struggled to historically.
“So I think we all know what the future looks like, the question is just how we get there.”
