Investor confidence renewed in renewables

While 2020 was certainly a challenging year for dealmakers – following Australia’s “black summer” bushfires and the COVID-19 health crisis quickly thereafter – it was also a year the scales tipped decisively in favour of renewable energy.

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MinterEllison and Acuris’ 2021 Australian Renewables Report reveals positive signs investment is returning to the renewable energy sector in Australia.

"One of the positive factors shaping the renewables financing environment is the growth of environmental, social and governance lending and investing.”

Both domestic and international investors surveyed are positive about the outlook for Australian renewables. Nearly two-thirds (65 per cent) of investors say they will increase investment in the next 12-24 months, with another 20 per cent saying their current level of investment will remain unchanged.

Australia’s safe haven credentials are a key attraction for international investors. However, domestic investors (keen to move before foreign investors) remain the most enthusiastic, with 83 per cent of Australia-based investors planning to increase the amount they invest. Investors from Asia Pacific plan to increase their investment by 77 per cent, a considerable increase on 45 per cent in 2019.

Australia ranks high among countries offering supportive financing environment for renewables with 87 per cent of respondents predicting 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).

One of the positive factors shaping the renewables financing environment is the growth of environmental, social and governance (ESG) lending and investing. In 2020 some domestic and overseas banks and financial institutions reappraised lending on fossil fuel projects – while backing renewable energy projects. 

Also, 2020 saw state and territory governments roll out ambitious programs to stimulate renewable energy. In Western Australia, for example, the state government brought forward its renewable hydrogen target. Meanwhile, New South Wales pledged to make the state a renewable energy superpower and mandated the construction of 12 gigawatts of clean energy and 2 gigawatts of storage over the next ten years – potentially unleashing $A32 billion in private investment.

The confidence in Australia’s renewable energy sector is strong but continues to face challenges in accessing a grid that has been developed at an earlier time for a thermal-based generation fleet. Improving 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.

However, it is clear momentum is building behind firming and storage technologies that make better use of existing grids. Battery deployments have moved further and faster than expected with Victoria’s recently proposed mammoth 300 megawatts Tesla battery near Geelong slated to be among the biggest in the world.

Meanwhile, interest in green hydrogen is growing. Hydrogen is less dependent on grids and paves the way to lucrative energy exports. All of this bodes well for the future of utility-scale renewables.

Overall, international and domestic renewables investors are confident in the market, with positive sentiment pointing to a robust year ahead. Indeed, 65 per cent say they will increase investments as they search out clean energy opportunities in Australia. Also, while some investors sat out 2020 amid the COVID-19 health crisis, half have charged ahead with investments and another 35 per cent will return to the market within the year.

Mining and agri active

Australia’s vast agriculture and natural resources industries stand to benefit from renewables as both sectors increase their adoption of renewable solutions.

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.

Australia’s agriculture sector continued to grow throughout 2020, despite disruption caused by the pandemic. Agribusiness is currently worth $A60 billion, but this is expected to climb to $A100 billion by 2030.

Like mining, the agriculture sector is a significant energy user. Processes such as water pumping, desalination and temperature control in greenhouses require huge energy inputs. In addition, the need to be on-grid limits the range of locations available for some types of farming activity.

Investors are clear renewable energy will play a critical part in delivering this growth: 80 per cent of respondents in MinterEllison’s recent report on Australian agribusiness said increasing use of renewables would have a positive impact on the industry’s growth, with 39 per cent saying renewables will have a transformative effect.

Australia’s vast energy market continues to inspire – and the outlook has never looked better.

Simon Scott is Partner and Head of the Energy & Resources Group & Joel Reid is Energy Group Partner at MinterEllison

From September to October 2020, MinterEllison and Acuris Studios, the publishing division of Acuris, canvassed the opinions of 100 renewable energy investors to gauge their views on the investment opportunities, trends and challenges in Australia. 60 per cent were based outside Australia while 40 per cent were domestic Australian firms. All respondents had in the past 12-24 months developed/ funded/invested in at least one Australia-based renewable energy project.

This is the second report on this sector from MinterEllison and Acuris. The first, was published in 2019, and the results of that research are referenced in this report for comparison on trends.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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