Year in Review: Renewables break through government inaction

Despite governments in countries such as the US and Australia failing to encourage clean energy investment, the sector has boomed. Is it finally coming of age?

In October 2018, the Intergovernmental Panel on Climate Change issued its latest report, one that caught headlines everywhere. It said the world had only 12 years to make changes that would keep global warming to a maximum of 1.5 degrees Celsius – or the risk of droughts, floods, extreme heat and poverty for hundreds of millions of people would severely worsen.

It is increasingly clear that not many of the world’s countries are doing enough to make sure those risks are avoided, particularly among the biggest carbon emitters.

But the increasing recognition that something must be done has led to an ever-growing clamour for clean energy, which, in turn, has made the past 12 months another bumper year for investment in renewables – despite the inaction of some of those governments.

Australia was a shining example in 2018 of how not to create a stable investment environment for new clean-energy projects.

The government began the year working through the details of its flagship policy, the National Energy Guarantee, which had the ambitious aim of increasing reliability and reducing prices while also lowering emissions. The business community was broadly behind it, despite it not being perfect, with one investor telling Infrastructure Investor in July only that it would “probably be good enough”.

But Prime Minister Malcolm Turnbull was ousted from office in August by his own party, ostensibly over the NEG’s emissions-reduction component, leaving federal energy policy in a state of limbo, which has persisted ever since.

Despite this, investment in renewable energy has flourished Down Under in 2018. Figures published by the Clean Energy Council, the peak industry body for the clean energy industry in Australia, showed that 14.6GW of new renewable-energy projects were under construction in December, with more than 80 wind or solar farms either under or about to begin construction.

The total value of projects under way was double that at the end of 2017, adding up to a record year for investment and construction.

There have been several significant deals and fundraisings in the sector this year, too.

Partners Group launched a push into Australian renewables in May, with a A$700 million ($498 million; €437 million) investment to establish Grassroots Renewable Energy, a platform it co-owns with CWP Renewables. The platform was seeded with the 270MW Sapphire Wind Farm and it also owns the under-construction Crudine Ridge Wind Farm.

In addition, Partners bolstered its portfolio by acquiring the first stage of the Murra Warra Wind Farm, although it was not made part of the GRE portfolio, demonstrating the Swiss firm’s commitment.

Corporate PPAs are becoming increasingly common, too, with Sydney Airport signing an agreement to take 75 percent of its energy needs from Partners Group’s Crudine Ridge project, while steel company BlueScope signed in June what it called “the largest corporate PPA announced with a solar farm in Australia” for 66 percent of the output of the 133MW Finley Solar Farm.

A group of several large corporations, including Telstra, ANZ and Coca-Cola Amatil signed a PPA with the Murra Warra scheme last December, before Partners acquired it.

On the fundraising front, Infrastructure Capital Group raised further capital for its third renewables vehicle and is looking to hit A$1 billion in 2019. A few other smaller funds have also been in the market this year, with several individual assets also up for sale.

This activity has come despite a leadership vacuum at the federal level, with state governments pushing renewable-energy targets that have fostered investment and corporations showing an increasing willingness to sign direct offtake agreements.

This pattern is replicated in the US, where states have taken the lead in the absence of any federal will to create significant incentives around renewables. California, to take one example, has set a mandate to have 100 percent clean-energy generation by 2045, which will undoubtedly spur investment.

And beyond the OECD markets, renewables show no sign of slowing down either. Asia represents a huge opportunity for those willing or able to make the leap.

So, despite the absence of leadership from many politicians, the need for cleaner energy is clear to many.

Smart investors have recognised that and have been able to take advantage – and the sector shows little sign of slowing down.