The trade body for Australia’s superannuation funds has criticised the country’s federal government for inaction on energy policy and said that industry superfunds can play a significant role in the energy transition.
In a report released today entitled Modernising Electricity Sectors, Industry Super Australia said: “The lack of a genuine long-term technology neutral energy policy is a major factor undermining fund investment.”
It said industry superfunds “stand ready” to allocate more capital to energy. It added that investors should “nudge” the sector towards a long-term solution that anticipates government decisions by making strategic investments that fill in network gaps and by replacing fossil-fuel generation with alternative technologies.
The organisation called for funds to take a more active role in engaging with government to shape energy policy. However, it acknowledged that investors faced “important and difficult” decisions when it came to investing in energy in Australia.
“This should not be taken to mean that the sector should be avoided by industry superannuation funds,” it said. “If anything, the message is the opposite. What seems to be called for is active engagement to ensure that investment opportunities are both created and realised.
“Potential returns from technological change and disrupting existing distribution models are too big to ignore. In this respect there is a good argument for the industry taking an active role.”
ISA identified “obvious targets” for equity investment. These include devices for buffering intermittent supply, such as battery technology or grid improvements; and electric vehicles, particularly in their supply chains and charging networks.
It also said a “watching brief” should be maintained on carbon capture and storage projects and on hydrogen technologies.
The organisation said certain asset classes may currently be undervalued because of policy inaction, and that this might present savvy investors with opportunities for rapid growth once policy had changed. The report added: “Many asset classes may be poorly valued for ideological reasons, or because of the ability of various groups to capture policy makers and the political debate. If handled carefully, this may also present significant investment opportunities.”
ISA called on government to reduce the National Electricity Market’s reliance on the spot market for energy pricing. It recommended the creation of competition to supply capacity and energy at given emissions targets through auctions of contracts lasting 20 years or longer. “These contracts would need to strike a balance between being enforceable by law to provide certainty to investors and being capable of responding to technological and other changes,” the report said.
Contracts would be purchased by state governments and private-sector market participants looking to secure reliability of supply and price. Long-term equity investors in assets would receive guaranteed rates of return – a change from the current system of more informal power-purchase agreements agreed on a project-by-project basis.
ISA said government might have to underwrite the market by investing directly in new infrastructure and contracting out the construction and operation of assets, and then potentially selling off the assets to private buyers.
The trade body estimated that industry superfunds had more than A$40 billion ($27.8 billion; €24.4 billion) of energy sector investments worldwide. Its estimate was based on figures provided by IFM Investors and from individual superfunds with A$3 billion or more of assets under management.
The 15 industry superfunds that are members of ISA are AustralianSuper, Cbus, Hesta, Hostplus, MTAA Super, CareSuper, LUCRF Super, NGS Super, Media Super, TWU Super, Energy Super, First Super, Maritime Super, Legal Super and REI Super.