‘It’s almost a revolution’: What Labor means for renewables investment

The 2022 election result will go down in history as a turning point in Australia’s renewable energy transition.

In his victory speech, Anthony Albanese pledged to end the climate wars and turn the country into a renewable energy superpower.

The loss of Liberal-held seats to Queensland Greens and city independents has given Labor the mandate to achieve these goals.

And investors, who have long cried out for policy certainty, are taking note.

Clean Energy Investor Group head Simon Corbell, who represents $24 billion from investors, including Macquarie Bank, says unlocking investment starts from the top.

To have a Prime Minister who is not grudgingly accepting the clean energy transition, but clearly and unambiguously embracing it, Corbell says. It’s the type of leadership that investors have been calling for.

But as the corflutes come down, expectations must be tempered with reality. Setting carbon-reduction targets is easy. Delivering them is hard.

There are enormous pools of debt and equity willing to finance this transition, but the private sector needs more than words before cheques are cut.

It’s almost a revolution, says Quinbrook founder David Scaysbrook, who manages $5 billion in clean energy projects across Australia, the US and UK. But for it to have real substance, we’re going to have to see a Herculean commitment to detailed rules and policy.

So, what needs to change?

1. Poles and wires

Australia’s energy grid is built for a highly centralised system, with the bulk of electricity coming from coal plants in the Latrobe or Hunter valleys.

Labor has committed to upgrading the grid, so it can handle more renewables, targeting 82 per cent by 2030, which would see billions in private and public funds poured into new poles and wires.

However, any investment in transmission first must pass the Regulatory Investment Test for transmission – a complex and lengthy process.

Corbell says the transmission line under construction to connect South Australia and NSW – Project EnergyConnect – took more than a decade to approve.

2. Backup generation

While red tape needs cutting, Scaysbrook says new rules must also to be written.

Two key industry regulators – the Energy Security Board and Australian Energy Market Commission – in recent years have released detailed reform agendas to rapidly decarbonise Australia’s energy system. Scaysbrook says these must be adopted in full.

This work has been done, it just didn’t get the airtime it deserved under the previous government, he says. We need the Labor government to get behind the recommendations and implement them in a bipartisan way.

The most critical of these reforms, he says, is the capacity mechanism – to underwrite generators that can snap into action when the wind isn’t blowing and sun isn’t shining.

Similar to the UK’s model, the mechanism would prevent blackouts by financing backup generators, such as batteries, gas or synchronous condensers (popular in the UK). These might only operate five to 10 minutes of the year, but that is the period when the lights go out, Scaysbrook says.

3. Demand

While these factors work to increase the supply of renewable energy, the other side of the equation is decreasing demand.

Some economies, such as Texas, provide financial incentives to major energy consumers to reduce or switch off power, when convenient. These consumers are now often signed up to long-term contracts, so are not exposed to market price fluctuations, meaning they have little reason to reduce electricity usage.

Turning off a large customer is equivalent to having something in reserve, Scaysbrook says. Rather than turning on a gas generator in times of peak power, you have large users turning down their load where they can.

At an individual level, technology is developing to assist households to use energy in off-peak times, saving Australians cash while reducing stress on the system.

4. Collaboration

The new government faces a combination of circumstances that require action to be taken as quickly as possible.

The economy is crying out for a nation-building agenda to help create jobs and drive growth. The science demands it, as .

You can’t afford to be late, says Scaysbrook.

The third time pressure is supply chains.

Anyone who is renovating their home would know how difficult it is to obtain materials, causing construction timeframes to blow out. Australia’s green energy transition requires a building boom.

Everything is taking longer. What you may have been able to do in 24 months, will now take 36 to 48. The timing problem is being compounded by supply chain issues that don’t look like they’re going to be resolved, says Scaysbrook.

Effective energy policy requires navigating a complex patchwork of federal, state and local government planning.

Corbell says the Albanese government should convene an urgent meeting between all energy ministers to plan the way forward.

5. Emissions reduction

The election result is also going to have consequences for the other side of the clean energy transition – fossil-fuel producers.

The Greens, which have seized the balance of power in the Senate, are calling for a moratorium on any new coal and gas projects. The teals are largely united in opposing fossil-fuel subsidies, and want more ambitious emissions-reduction targets.

These factors combined will likely make it harder for fossil-fuel producers to expand operations and may put their revenue streams under pressure by raising risks for exploration and production.

Labor’s safeguard mechanism to cap the emissions for the dirtiest companies will likely push up the cost of doing business.

Green investors can see , with opportunity for jobs, growth and new export industries.

The voters have declared it’s time for change. Now up to the new federal government to deliver.

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