By Igor Sadimenko, EY Oceania Power & Utilities Leader
The latest EY Renewable Energy Country Attractiveness Index (RECAI) reveals Australia has fallen a spot to seventh place in our list of the top 40 markets for investment in clean energy (the US, China and India took the top three positions.)
Is this bad news for Australia’s clean energy sector? It’s certainly disappointing but comes as somewhat of a turning point. Investment is picking up, development momentum is growing and demand for well-located, earlier stage projects in wind, solar and hydrogen is a clear sign that Australia’s energy transition is gaining pace.
Australia emerges as a leading PPA market
Australia’s business sector is a driving force behind our country’s accelerating clean energy investment. It’s taken some time, but it feels like corporate Australia has undergone a sudden gear shift, perhaps driven by the cumulative pressures of the ESG agenda and the need to transform for a world changed by the pandemic. The race to a national collaborative commitment is on – and the business world is uniting to lead the way. At EY, we’re proud of our commitment to reducing carbon emissions and recently announced we’d become the first professional services organization to achieve carbon negativity.
Power purchase agreements (PPAs) are a big part of corporate’s sustainability agendas, as a way for businesses to procure clean power and for developers to secure financial viability for new projects. The latest RECAI includes our first ever corporate PPA Index to analyse and rank the growth of PPAs. Australia ranks fifth in the Index, and we expect to see more of these complex but cost-effective transactions including this one an EY team helped broker for Woolworths.
Network investment needed to remove renewables gridlock
Another sign of progress is that, after years of lacklustre investment in Australia’s grid, work has begun to upgrade the network to cope with more renewables. Development continues on a market design that will identify and connect our vast renewable energy resources, removing network capacity barriers to deliver clean power via scale-efficient, cost-effective network infrastructure.
And several large transmission investments in the pipeline are more positive indications that the 2020s is set to be the decade of network development. One of the most exciting of these is the Marinus Link – a proposed AU$3.5b (US$2.6b) high-voltage direct current undersea cable would connect Tasmania to the mainland. An EY team has been working on the project which, if it goes ahead, would see the island state act as a kind of giant battery, providing capacity firming services. The interconnector would also support future green hydrogen projects.
We’re also seeing the long overdue challenging of traditional risk management framework of networks. Ensuring our existing and future network assets work together requires new, virtual transmission solutions that exploit cost reductions and advanced control systems in large-scale battery energy storage systems. The EY energy modelling team has been working collaboratively with several Australian state governments to develop renewable energy roadmaps and support renewable energy zone transmission infrastructure plans.
What can we learn from the others?
Besides strong commitment by some of the top nations, policy platforms that generates market certainty and visible implementation plans, countries such UK, US, Germany and Netherlands are leading the decarbonisation race through innovative methods that encourage adoption of mature renewable technologies. However, this is not done in the absence of backing R&D into the new technology capabilities, and up and coming markets. Many of these nations are focused on technologies such CCS, green hydrogen production and storage, and investment into alternative bio-fuels research to name a few.
EY Renewable Energy Country Attractiveness Index (RECAI) has captured several examples of policy and market incentives that are driving adoption of these mature technologies.
The UK has announced £265m (AUD500m) for its biggest ever round of the contracts for difference (CfD) scheme, as it seeks to reach record extra renewable energy capacity. The scheme has been instrumental in driving investment in green energy, incentivizing investment by providing protection from volatile energy prices for developers of projects with high upfront costs. It incentivises investment in renewable energy by providing developers of projects with high upfront costs and long lifetimes with protection from volatile wholesale prices. This in turn ensures consumers don’t pay increased costs when electricity prices are high.
In US, utility-scale renewables are expected to increase their share of the electricity mix this year to a record 21 per cent, with further growth to 23 per cent projected in 2022, boosted by the country’s infrastructure bill allocating US$73bn for clean energy. Meanwhile, because of project delays caused by the COVID-19 pandemic, US Internal Revenue Service will allow wind and solar companies one to two years longer to finish construction of existing projects and to qualify for federal tax credits on projects where construction started between 2016 and 2020.
The Netherlands has been touted as a market leader for green hydrogen production by Fitch Solutions, drawing praise for its advanced regulatory, policy and strategy support. With nearly 300 hydrogen tech firms already operating in the country, and clusters in the ports of Amsterdam and Rotterdam, the nation is a step ahead of many of its European neighbours in this nascent industry.
Germany’s onshore wind market had a fruitful first half of 2021, with 971MW added, marking a 62 per cent rise from the first half of 2020. Overall, net additions reached 831MW as turbines with a capacity of 140MW were decommissioned. Germany’s onshore wind power generation capacity now exceeds 55GW, and a rosy outlook persists, with wind power installation expected to range from 2.2GW–2.4GW for the whole year.
Clarity can build investor confidence
Against the backdrop of the recently completed COP26, the debate around our nation’s plan to reach a low carbon future continues. Certainly, the Morrison government’s plan to achieve net zero by 2050 is a positive move that we hope will kickstart an accelerated national pathway to Australia’s low carbon future. 2022 looks set to be a flagship year for investment in Australia’s clean energy sector – driven by corporate ambition, backed by stronger government support and demanded by more engaged energy consumers. Will next year’s RECAI see Australia further up the Index? Time will tell.