Wind and sun aplenty, but investors wary of Australian RE


SYDNEY • Australia’s sunny skies and windswept coasts, which have drawn billions of dollars to the nation’s renewable energy (RE) sector, are starting to become a hard sell.

Overseas RE developers and investors are shying away in the face of a creaking power grid and unclear policy, exacerbated by Prime Minister Scott Morrison defending fossil fuels and refu-sing to tighten emission targets even amid deadly wildfires and drought.

London-based construction group John Laing Group plc this month said it would exit the market, highlighting a trend that last year saw new investment in the sector fall for the first time in half a decade.

“Australia is a market with significant challenges and currently international investors are very wary of investment,” said John Martin, CEO of renewables investor New Energy Solar Ltd. “They see a range of unresolvable issues from a lack of consensus on policy and an overly complex market design to individual project woes like grid access, congestion, marginal loss factors and curtailment.”

Investment in the sector fell almost 60% last year from a record. The industry met the government’s long-term RE target a year ahead of time, with no new incentive to replace it.

Morrison’s administration is also a strong supporter of the coal industry, including backing studies into new coal-fired generation, and its refusal to consider a carbon pricing mechanism is widely seen as a further impediment to the clean energy transition.

New Energy Solar is listed on the Australian stock exchange, but its two renewable investment portfolios comprise 49 solar plants in the US and just two in its home country. The weighting reflects the relative merits of the two markets, Martin said.

John Laing plans to sell its RE power assets across all geographies, but singled out transmission losses as the main cause of its decision to exit Australia. CEO Olivier Brousse described it as “new projects coming online faster than the ability of the grid operator to increase the capacity of the transmission lines.” The group reported a £52 million (RM273 million) loss on its Australian renewable assets in 2019.

Windlab Ltd, another RE deve-loper, said it saw better opportunities in Africa than Australia, after its business was hit by grid costs, curtailments and a dispute with the contractor which has delayed its flagship wind, solar and battery hybrid project in Queensland.

“Across the Australian market, investment in RE has collapsed in 2019,” Windlab CEO Roger Price said on a March 6 analyst call. In contrast, the company is expanding its presence in Africa. It is developing projects in Kenya and South Africa, where “the need for more generating capacity could not be clearer”.

Not everyone is downbeat on Australian wind and solar. The strong underlying economics for RE will ensure that investment continues to flow, said Kim Nguyen, who heads the Australian unit of UK investment company Foresight Group.

There were no signs as yet of an exodus of investors in John Laing’s wake, she said. Foresight operates the Bannerton solar farm in Victoria.

“There’s still a lot of interest for assets in the market,” she said. However, “when you have increased volatility around revenues, when you have increased regulatory uncertainty, then what happens is that the cost of capital required by equity investors increases.”

The energy network is likely to need about A$400 billion (RM1.11 trillion) in new utility-scale generation assets over the next 30 years as ageing coal-fired power plants retire, according to a report last year from the Grattan Institute think tank. As the lowest-cost option, much of that generation is likely to come from solar and wind, backed by storage from pumped hydro projects and big lithium-ion batteries. — Bloomberg