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Some of the world’s largest investors in clean energy projects have called on Australian regulators to hurry up and remove outdated energy market rules that are holding back the transition to renewables.
According to the latest Clean Energy Investment Confidence Survey, commissioned by the Clean Energy Investor Group (CEIG), Australia is falling behind the rest of the world.
The survey found that while investors remain optimistic about the scale of opportunity for new investments in wind, solar and storage, many remain concerned that the rules within Australia’s energy markets were not conducive to achieving the pace of investment needed to replace ageing coal generators.
New clean energy transactions remain subdued, with only 3 transactions reported in the latest quarter, one for 50MW and 2 others unspecified.
“The Q2 FY 2021-22 Clean Energy Investment Confidence Survey shows that investors remain concerned that the pace of regulatory and policy reform is not facilitating the level of investment needed to realize the Step Change scenario,” CEIG CEO Simon Corbell said.
“CEIG finds that investor confidence is unchanged this quarter. Investors report that the risk premium on the cost of equity is unchanged or worse.”
“While investors welcomed the stronger Step Change ISP scenario, they report that the overall direction of reform in the NEM is unchanged and remain concerned about slow market reform.”
“The bottom line is investment in renewable energy projects in Australia continues to fall behind. This will make it harder for Australia to realize the Step Change scenario in the time required,” Corbell added.
The CEIG’s represents a membership that consists of 18 major investors and project developers in clean energy projects, collectively managing a portfolio of more than 11GW of generation capacity and $24 billion worth of investment.
It includes global groups such as RWE, Macquarie, Canadian Solar, Total Eren, Neoen and Andrew Forrest’s Squadron Energy, along with the federal government owned Snowy Hydro.
The latest investor confidence survey follows the release of the draft 2022 Integrated System Plan by the Australian Energy Market Operator – which includes an ambitious step-change scenario showing Australia moving towards a grid dominated by renewable energy supply within the next decade.
While this ‘step-change’ scenario was initially conceived as an ambitious ‘what-if’ scenario in an earlier iteration of AEMO’s influential Integrated System Plan, it has come to be viewed as the ‘central’ expected scenario as the rate of new investment in renewable energy and storage projects exceeded expectations.
Corbell said that energy market regulators needed to act to remove the perceived shackles on clean energy investment, given the accelerating pace at which Australia’s coal-fired generators are expected to be withdrawn from the market.
“Unless we accelerate development of clean energy generation and the necessary transmission infrastructure, the continued early closure of coal could result in a disorderly and expensive transition,” Corbell said.
“The Australian Energy Market Operator’s (AEMO) draft 2022 ISP shows that the energy transition is proceeding faster than predicted. It makes a ‘Step Change’ scenario the central assumption for the future planning of the National Electricity Market (NEM) and investors have welcomed this decision.”
The investor survey found the main concerns for new projects continue to relate to network capacity challenges and outdated approaches to managing how the cost of new connection infrastructure is distributed between market participants.
“The key outstanding risks for investors are complex and lengthy transmission development processes, the proposed introduction of locational marginal pricing and lack of reform to the marginal loss factor mechanism,” Corbell added.
The results of the survey follow a call from Australia’s leading clean energy industry groups for a greater acceptance by governments and market rulemakers that the closure of coal fired generators was an inevitability, and to reform energy market rules to support their timely replacement with clean energy alternatives.
As RenewEconomy has reported, the last decade of investment in clean energy project has occurred at a staggering pace as the cost of technologies has plummeted.
But this will be eclipsed by the pace of change over the next decade, as further cost reductions, the imperative to slash global greenhouse gas emissions and the necessity of replacing an ageing coal fleet combine to underpin the predicted ‘step change’ in the clean energy transition.