Uncertainty surrounding the future of clean energy policy presents a major challenge to investment in renewable assets, according to Frontier Advisors.
“Political instability” plays a major role in influencing the development of renewable energy projects, according to Frontier Advisors’ report titled Renewable Energy: Don’t be a Fuel.
“This is a key risk facing the renewable energy market,” the paper said.
“Uncertainty remains as to the future of clean energy policy in Australia. There is disagreement amongst political parties on the best way forward.
“There are disparate approaches at both federal and state levels and, finally, Australia does not yet have a clear strategy in place to meet its broader target set at the Conference of Parties (COP21) in Paris in December 2015.”
While renewable energy policy has matured, “clear, cohesive and consistent policy is paramount for investment”, the paper argued, given that policy confusion had brought about volatility and discouraged investors in the past.
For investors in the renewable asset class, the paper recommended a “well-diversified portfolio” and the “adoption of a global investment approach”.
“Once an asset enters operation there are limited levers available to enhance performance,” the paper said.
“The long-term nature of cash flows, combined with the variability of renewable resource availability and the volatility of energy prices, means the need for sound underwriting and experienced management cannot be understated.”
Technology was also outlined as a key challenge for renewable energy assets.
“A critical issue will be how electricity grids, which have been built on the basis of fairly constant fossil fuel-based electricity supply, adapt to deal with intermittent renewable energy supply,” the paper said.
Battery technology had yet to reach the point where it could regulate and meet the required demand, although it has been developing quickly, according to the paper.
A number of other risks for renewables were also discussed, including technical issues stemming from the nature of rapid development and change; quantity variability regarding the availability of resources (such as wind and sun); increased costs of operations and maintenance detracted from investor returns; and the management of multiple stakeholders.