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Global political action, extreme weather events, technological breakthrough and changing consumer sentiments have shifted climate-related risks into an investment fundamental for all. Corporations are having to assess the direct impact of climate-related risks on all business operations, financial standing and reputation. Meanwhile, SMSF trustees are seeking new ways to strengthen their portfolios with environmental, social and governance (ESG) investments that are aligned with their values.
Investment trends in renewable energy
Energy policy plays a significant role in the investment case for renewable energy. In 2020, Australia reached the Federal Government’s Renewable Energy Target (RET) to supply 33,000 GWh of energy from renewable sources. In October 2021, the Federal Government announced a long-term plan to reach net-zero emissions by 2050. However, it has been the state and territory governments’ short-term commitments that have driven the expansion of Australia’s large-scale renewable energy industry.
The NSW Government’s Electricity Infrastructure Roadmap will deliver 3 GW of new network capacity through the construction of the Central-West Orana Renewable Energy Zone – the first of five renewable energy zones across the state (NSW Government, 2021). In 2020, the ACT government achieved 100% renewable electricity through a reverse auction process that secured 841 MW of wind and solar energy (ACT Government, 2020). Moving forward, the ACT government is now committed to delivering 250 MW of battery storage across the ACT to improve network reliability and to support the uptake of renewable energy.
A growing number of institutional investors, such as superannuation funds, insurance companies, and mutual funds, are integrating ESG considerations into their investment portfolios.
One pathway to achieving this is through investment in corporations that perform better, based on ESG indicators, in comparison to other companies in the same sector. Analysis from Morningstar reveals that 75% of ESG-screened indexes outperformed their benchmark in 2020, with 88% outperforming over a 5-year period (Institutional Investor, 2021). In this manner, institutional investors are able to maintain a level of influence by leveraging their capital to encourage a low-carbon transition in the organisations that they invest in.
A more direct approach involves investing in projects with specific ESG objectives, such as renewable energy projects. Research from the International Renewable Energy Agency indicates that “renewable energy assets provide institutional investors with relatively strong, stable, long-term ‘bond-like’ returns that match such investors’ long-term liabilities, while minimising the risk of stranded assets” (IRENA, 2022). Meanwhile, there is a strong preference for utility-scale solar and wind projects due to large transaction sizes and proven technologies.
In addition to state and territory government action, Australia’s largest corporations are making ambitious sustainability and net-zero emissions targets. According to the Business Council of Australia, about 50 companies representing half of the total ASX200 market capitalisation have made net-zero commitments (BCA, 2021). In the near term, companies are increasing energy efficiencies in their business operations and purchasing large-scale generation certificates (LGCs) to offset carbon emissions in their electricity consumption. The LGC spot price on the secondary market has continued to increase due to growth in voluntary demand from the private sector. Meanwhile, LGC forward contract prices for Cal 23-26 remain relatively high despite an expected surplus as the Federal Government’s legislated demand has already been met under the RET.
Power purchase agreements (PPAs) have also become a popular long-term strategy for corporate procurement of renewable energy. Reporting from the Australian Renewable Energy Agency reveals that at the end of October 2021, there were 110 publicly confirmed PPAs which have contracted more than 4 GW of renewable electricity (BCRA, 2021). PPAs allow the buyer to secure renewable energy at a fixed price over a set period of time. This makes switching to renewables more attractive for organisations as it minimises the risks associated with wholesale spot price volatility on the National Electricity Market (NEM). Meanwhile, developers and investors get the revenue certainty they need to finance and develop a project.
What is the future for renewable energy?
The most rapid advancements are being made in renewable energy storage such as utility-scale batteries and pumped hydro. Energy storage balances out variable renewable energy and enables the generation of constant output to increase dispatchability – the ability to supply energy on demand in response to the needs of the NEM. A more dispatchable portfolio can maximise the operation of renewable generators, like wind and solar farms, to deliver more stable returns. Furthermore, energy storage provides additional income streams through participation in the NEM’s grid stability and ancillary network service markets. Such features set up the grid for higher penetrations of renewables to support the energy transition that is well underway in Australia.
About ITP Development
ITP Development (ITPD) are solar farm developers in NSW with the aim of making the world a better place, one solar farm at a time. Our team is passionate about the environment and making positive change through environmentally conscious developments that supply clean and affordable electricity to the residents of NSW. We have partnered with Energy Democracy to support the Central West NSW Co-operative with a solar and battery project in Orange, NSW. The project consists of 4.99MW of solar PV and 4.99MW/5.2MWh of battery energy storage which will support the community of Orange through a reliable source of electricity, create local construction jobs and educate the community of energy efficiency practices. The project is supported by $3.5 million in funding from the NSW Government’s Regional Community Energy Fund.
How can you get involved?
The Central West NSW Co-operative are offering share parcels in the Orange Community Renewable Energy Project (OCREP), currently available for purchase. Each share parcel costs $999, with an expected return of 8 to 12% over the 35-year lifetime of the project.1 The investment opportunity is open to anyone in Australia. If you would like to find out more, please call 1300 368 303 or visit www.energydemocracy.net.
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Disclaimer: Please note, this is general advice only and not financial advice. Anyone interested in investing should seek independent financial advice before doing so. Please read the Disclosure Statement. No application for relief under section 741 of the Corporations Act 2001 (Cth) will be sought by the Energy Democracy Central West NSW Co-operative Limited (‘the Co-operative’) in relation to any statement made in this document as the Chapter 6D disclosure provisions do not apply to members’ shares in the Co-operative.
References: ACT Government. (2020). Canberra 100% Renewable: leading innovation with 100% renewable energy by 2020. Accessed March 12, 2022. https://www.environment.act.gov.au/__data/assets/pdf_file/0007/987991/100-Renewal-Energy-Tri-fold-ACCESS.pdf
BCA. (2021). Achieving a net zero economy. October 2021.
BRCA. (2021). Corporate Renewable Power Purchase Agreements in Australia: State of the Market 2021.
Clean Energy Council. (2021). Clean Energy Australia Report 2021.
Institutional Investor. (2021). ESG Index Funds are Outperforming (Mostly). Accessed February 28, 2022. https://www.institutionalinvestor.com/article/b1qthg6qk5gtzd/ESG-Index-Funds-Are-Outperforming-Mostly
IRENA. (2022). Institutional Capital: Closing the Energy Transformation
Investment Gap. Accessed February 02, 2022. https://www.irena.org/newsroom/articles/2020/Aug/Institutional-Capital-Closing-the-Energy-Transformation-Investment-Gap
NSW Government. (2020). Renewable Energy Zones. Accessed February 12, 2022. https://www.energy.nsw.gov.au/renewables/renewable-energy-zones