5 minute read 10 Dec 2021
How Australia can remove roadblocks to renewables investment

How Australia can remove roadblocks to renewables investment

Authors
Igor Sadimenko

EY Asia Pacific Power & Utilities EAM Leader

Business strategy professional. Transformation leader.

Ben Vanderwaal

EY Oceania Power & Utilities Partner

Energy expert. Sophisticated market forecaster. Embracing change.

Cara Graham

EY Oceania Transaction and Advisory Services, Power & Utilities Partner

Energy industry lifer. Avid coffee drinker. Motor car enthusiast. Wife & mother.

5 minute read 10 Dec 2021
Related topics RECAI Energy and resources

Major projects in solar, wind and green hydrogen are set to accelerate Australia’s energy transition, but barriers remain.

In brief
  • Australia has fallen to 7th spot in the latest EY Renewable Energy Country Attractiveness Index
  • Despite the decline, investment is increasing across Australia’s clean energy sector, including through major wind, solar and hydrogen projects
  • PPAs are playing an increasing role in Australia’s renewables sector, as evidenced by the country’s 5th spot in EY’s first PPA Index
  • More investment in transmission infrastructure will be critical to enabling Australia’s energy transition

Let’s get the bad news out of the way first. Australia has fallen another spot in the latest EY Renewable Energy Country Attractiveness Index (RECAI), taking 7th place in the biannual ranking of the world’s top clean energy markets. Australia’s potential to become a global renewables powerhouse remains hindered by a lack of regulatory clarity and clear climate policy at a federal level.

The good news is that the latest drop is only a marginal one – and that we are already seeing investment pick up across Australia’s renewable energy sector following a modest year in 2020, where very few renewable energy projects (contributing just 449 MW) reaching financial close.

This year, we’ve seen much stronger activity with several wind and solar projects reaching financial close this year, including Queensland wind projects financed by established developers including Acciona and NEOEN. In the earlier stages of the development lifecycle, momentum is growing too, with increasingly competitive processes and high valuations for those project developers with deep pipelines of assets, such as Powering Australia Renewables Fund’s acquisition of Tilt Renewables.

This growing demand for well-located, earlier stage projects is a clear sign from investors that the energy transition to renewable energy gaining pace. We expect that 2022 will be a turning point for our country’s green energy sector, as a wave of new projects and commitments across solar, wind and green hydrogen production accelerate Australia’s energy transition.

Australia emerges as a leading PPA market

As reported in RECAI, power purchase agreements (PPAs) are a key driver of clean energy investment, giving an organization an ability to demonstrate their green credentials while providing developers with the ability to secure financing and create viable new projects.

This latest RECAI includes our first ever corporate PPA Index to analyse and rank the growth of PPAs. Australia ranks 5th in the Index, and we expect PPAs to become even more prominent here as some of Australia’s biggest companies double down on decarbonisation. 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 – the business world is uniting to accelerate Australia’s energy transition and PPAs are set to play a big part in this change.

However, PPAs are complex transactions to get right, particularly because of the Australian electricity market’s volatile pricing. EY teams are supporting many corporate clients implement PPAs that balance risk with reward in this challenging market. For example, a team led by Director from Ernst and Young LLP Jomo Owusu helped Woolworths broker a 10-year PPA that will enable the supermarket giant to avoid almost 158,000 tonnes of carbon emissions each year.

Decarbonising Woolworths

158,000

Tonnes of carbon emissions Woolworths will avoid through its 10-year PPA

Network investment needed to remove renewables gridlock

Renewable electricity generation is set to expand more than 8% this year, according to the International Energy Agency (IEA), a rate of growth that would be the fastest since the 1970s. But there may be roadblocks ahead if rapid and significant upgrades are not made to the world’s electricity transmission networks. The IEA warns that a 50% increase in grid spending will be needed over the next decade to meet sustainability goals, with particular investment in transmission lines required to ensure greater integration of renewables.

Among most energy markets, the realisation that upgrades are needed is not new but challenges to making them happen have been difficult to overcome. In Australia, the shift to prepare our transmission network to accommodate more renewables is complicated by the fact that our grid needs to cover a geographically large area yet services a comparatively small number of customers. Work is underway 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.

Australia is currently considering several large transmission investments. One of the biggest is Marinus Link. TasNetworks, Tasmania’s state-owned electricity transmission and distribution company, has proposed the AU$3.5b (US$2.6b) project. This high-voltage direct current (HVDC) undersea cable would connect Tasmania, which met its 100% renewable energy target in November 2020, with the mainland – effectively seeing the island act as a kind of giant battery through providing capacity firming services from existing hydro and new pumped storage hydro to the NEM. The proposed interconnector would also support future green hydrogen projects.

An EY team that includes Ben Vanderwaal, Clare Giacomantonio, Craig Mickle and Michael Newman has been supporting the project since 2018, helping TasNetworks with work including extensive market modelling to determine its viability as a regulated asset and advice around commercial and regulatory considerations.

The traditional risk management framework of networks is also being challenged. Work is well underway on virtual transmission solutions that exploit cost reductions and advanced control systems in large-scale battery energy storage systems to maximise the use of existing and future network assets. 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. After twenty years of almost no investment in Australia’s major transmission infrastructure, the 2020s is set to be the decade of network development.

After twenty years of almost no investment in Australia’s major transmission infrastructure, the 2020s is set to be the decade of network development.
Igor Sadimenko, EY Oceania Power & Utilities Leader

Clarity can build investor confidence 

But the success of the Marinus Link and other grid upgrades may depend upon a stronger federal imperative to transition to renewables. The Morrison government’s plan to achieve net zero carbon emissions by 2050 is a positive move that we hope will signal the development of a national pathway into a low carbon future. We require even greater investment into transmission assets, more use of new and proven technologies and an energy system design that is resilient enough to manage grid reliability and stability.

A clear pathway could help Australia avoid the energy system risks we see European nations facing now, and also build confidence in our industry. This will drive accelerated investment, more innovation in technology and, critically, support the environmental and social responsibility that energy consumers demand.

Summary

Investment in Australia’s renewable energy sector is picking up. Despite the country falling a spot in EY’s latest Renewable Energy Country Attractiveness Index, we see evidence of accelerating investment, partly because of corporate Australia doubling down on commitments to sustainability. 2022 may be a turning point for clean energy development, including through more PPAs and facilitated by long-overdue investment in the country’s transmission infrastructure.

About this article

Authors
Igor Sadimenko

EY Asia Pacific Power & Utilities EAM Leader

Business strategy professional. Transformation leader.

Ben Vanderwaal

EY Oceania Power & Utilities Partner

Energy expert. Sophisticated market forecaster. Embracing change.

Cara Graham

EY Oceania Transaction and Advisory Services, Power & Utilities Partner

Energy industry lifer. Avid coffee drinker. Motor car enthusiast. Wife & mother.

Related topics RECAI Energy and resources