The Albanese government has committed to slash greenhouse gas emissions by 43 per cent from 2005 levels by 2030, and to hit net zero by 2050, by nearly tripling the country’s share of renewable sources as well as investing in new technology such as hydrogen as well as spending billions of dollars to expand the transmission grid.
These efforts have made the sector increasingly more attractive for local investors such as super funds and asset managers as well as offshore participants, driving up prices and valuations of renewable energy projects.
“Values within this sector have been impacted by the very strong demand for investments in clean energy,” Palisade Investment Partners’ executive director Simon Parbery tells Investment Magazine.
“[There is also] a growing universe of investors who need to improve their ESG credentials coming from other jurisdictions who also see the opportunity set given the targets [Australia] has.”
While returns on these investments have fallen gradually as demand increased, investors can still expect a 10-12 per cent return according to industry sources.
Palisade recently announced a new renewables investment platform, Intera, that attracted allocations from Aware Super, HESTA and the Clean Energy Finance Corp. With installed capacity of more than 1.5GW and an estimated first 12-months EBITDA of $150 million per annum, Palisade plans to use the platform as a vehicle for future acquisitions.
Strong domestic investor appetite
Aware Super has a $2 billion commitment to the renewable energy sector. Senior portfolio manager for infrastructure Mark Hector says “[Intera] will help to immediately diversify our renewables exposure to also include stakes in other predominantly grid-scale wind generators”.
While the sector is highly complex and dynamic with “risks which runs the gamut of policy, merchant forecasting, grid connection, technology advancement and asset useful life risks – all of which needs to be appropriately understood and priced,” he says.
“But we believe that by being patient and selective, we can continue to find some good financial risk and reward for our 1.1 million members, which is our key objective as one of the nation’s largest industry super funds.”
Meanwhile Cbus acting CIO Brett Chatfield said in a recent interview the fund had significant appetite for investments in solar, wind and pumped hydro and was engaged in discussions with the Victoria and Queensland state governments over their extensive capital requirements to decarbonise those economies.
Australian investor Quinbrook Infrastructure Partners, the largest solar developer in the UK and US, has emerged as part of the winning bid for the Northern Territory Sun Cable. The project was put to auction after the original billionaire sponsors fell out over how to proceed with the development.
The project is divided into two components with Quinbrook focusing on the onshore project that connects a solar farm to the state capital Darwin through an 800 km transmission line. The winning consortium’s other bid partner tech billionaire Mike Cannon-Brooks is pushing to develop a 4200km undersea cable – the longest ever – to supply energy to Singapore.
AustralianSuper is an investor in Quinbrook and the project is expected to attract capital from asset owners from the Nordic countries, UK, US and Canada according to co-founder and managing director David Scaysbrook which he describes as a ‘United Nations of global capital’.
Quinbrook is also developing a $2.5 billion data story project in Brisbane that will be powered by renewables and battery storage.
Fixing the grid
The Federal Government has allocated a whopping $20 billion to expand the capacity of the transmission grid. The lack of capacity has been a key impediment to new investment in renewable energy generation in the last decade.
The government has also committed $2 billion to develop Australia into a green hydrogen export hub to Asian markets in Japan, South Korea and Singapore.
These initiatives will go a long way to reduce the soaring energy costs for Australian consumers and businesses, badly hit by the lack of new renewable energy and the systematic closure of aging – but cheap – coal-fired power projects.
“If government can address a lot of the uncertainties for investors, then the cost of capital will come down and then that reduces the cost of power to the consumer,” says Palisade’s managing director Roger Lloyd.
“For example, on the revenue side it would be helpful if government could address marginal loss factor and grid constraint issues and incentivise contracting by extending and expanding the Renewable Energy Target.”