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Momentum on a large scale—increasing investment in renewables

The past year saw growing momentum in the large-scale scheme with an increase in investor and market confidence. While the year started slowly, by the end of 2016 there was renewed enthusiasm, with a significant increase in large-scale projects being financed and commercial arrangements being finalised.

Investment in small-scale systems was steady throughout most of 2016, with the average system capacity increasing.

Momentum on a large scale—increasing investment in renewables

Following the passage of the legislative amendments locking in changes to the Renewable Energy (Electricity) Act 2000 in June 2015, the market showed signs of increased optimism during 2016.

Increasing interest in investing in Australia's renewable energy industry resulted in heightened activity in the market, particularly towards the end of 2016.

One-third of the new project build required to meet the target of 33 000 gigawatt hours was either fully financed or supported by a power purchase agreement in 2016. Once built, this will increase large-scale generation to more than 23 000 gigawatt hours in 2018. This is a significant increase on the more than 18 300 gigawatt hours reported20 for 2016 and shows that 33 000 gigawatt hours is clearly in sight for 2020.

Indications are that the momentum has grown and the industry is gearing up for another big year in 2017.

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'Based on major renewable energy projects that were committed and likely to proceed, 2016 was by far the biggest calendar year for industry investment this century.'
Alicia Webb, Clean Energy Council Director, Large-scale Energy

 

The increase in investment sees Australia now among the top 10 countries in the world for renewable energy investment21. Australia's clean energy investment in 2016 was the ninth highest, ahead of other resource-intensive economies such as Norway and Canada22.

A total of $4.29 billion was invested nationally in clean energy in 201623. At a time of declining general business investment in Australia and worldwide24, this is a positive development for Australia's renewable energy industry, with more large-scale projects committed in 2016 than in any previous year.

There has also been a notable shift towards electricity retailers and financial institutions proactively seeking new ways to invest in the industry. For example:

In addition, new players entered the market, including significant offshore investment.

SPOTLIGHT...
Innovative financing in the Australian market

During 2016 we commissioned Ernst & Young (EY), to examine the market for investment in renewables in Australia. We released EY's report, Meeting the Renewable Energy Target: Innovative approaches to financing renewables in Australia, in September 2016.

The report finds the capacity of current renewable energy projects with development approval is more than enough to meet the 2020 target, and there is plenty of capital available to back projects, if the terms are satisfactory. However, innovative thinking is needed to bring together the existing demand, projects and finance.

The recent increase in committed projects and investment funding is encouraging, as is the use of non-traditional financial structures by projects already in construction, and new financial products and procurement processes in the market.

For example, some projects are being built on a merchant basis, where project sponsors take on the risk of development without a long-term power purchase agreement in place. This approach allows projects to proceed to construction without delay and with the option to negotiate an agreement at any time.

Corporations and government organisations are also starting to directly source their energy from renewable energy projects. Groups of corporates may also combine their energy procurement into one transaction and benefit from economies of scale, lower transaction costs and better priced electricity.

Other options available to project developers and investors include financing instruments for managing merchant risk, various hedging instruments and insurance products, and new approaches to appraising equity risks, such as on a portfolio basis rather than a project-specific basis.

Footnotes

20 This number is expected to increase as large-scale renewable power stations have up to 12 months to report generation and create certificates. This number is at 21 February 2017.

21 EY, Meeting the Renewable Energy Target: Innovative approaches to financing renewables in Australia, September 2016.

22 Bloomberg New Energy Finance, Clean Energy Investment End of Year 2016, January 2017, https://about.bnef.com/clean-energy-investment/.

23 Bloomberg New Energy Finance, Clean Energy Investment End of Year 2016, January 2017, https://about.bnef.com/clean-energy-investment/.

24 Australian Bureau of Statistics, Private New Capital Expenditure and Expected Expenditure, Australia, December 2016, www.abs.gov.au/ausstats/abs@.nsf/mf/5625.0.

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