According to a new report from law firm MinterEllison and Mergermarket, investors remain positive about the outlook for renewable energy investment in Australia.
The study revealed that almost three quarters (74 per cent) of global and domestic investors will increase investments in Australian renewables through 2023 – a noticeable uptick from 2021 (65 per cent).
The firm noted that the Australian government’s push for renewables, alongside decarbonisation efforts, is also boosting investor confidence, as 85 per cent of investors projected that federal and state policies will be supportive towards the sector.
MinterEllison partner, Andrea Frank, said that the country’s renewable energy prospects are attracting substantial interest, whether that be from strategic investors, ESG-focused funds or traditional energy providers looking for transitional assets.
NSW stands out as a key market, with 60 per cent of respondents deeming it the most attractive location.
“The Renewable Energy Zones, particularly Central-West Orana and New England, will provide the backbone for massive forward investment in generation, firming and storage, and provide a clear investment signal,” explained Simon Harvey, partner at MinterEllison.
“The LTESA (Long-Term Energy Service Agreements) option product is innovative, acts as insurance against downside pool price scenarios, and potentially both increases bankability and delivers a superior outcome for consumers,” he added.
Mergers and acquisitions are set to be a key driver of future trends, with half of respondents (52 per cent) saying a bolt-on acquisition is among the main objectives of their most recent deal, along with 50 per cent who point to growth through acquisition.
The decarbonisation efforts of oil and gas investors were particularly active, accounting for over 10 per cent of renewables deals in 2022.
“The M&A landscape for Australian renewables is strong, buoyed by the announcement of renewable energy targets, the scheduled shutdown of coal-fired generators and a supportive federal government policy environment,” Ms Frank said.
Notably, one in every six deals transacted in 2022 in the Australian renewables M&A market involved assets linked to hydrogen production.
As such, 40 per cent of investors expect hydrogen to catch up with expectations, or reach maturity within one to two years.
However, MinterEllison found that valuations being too high has risen to replace regulation and incentives concerns as the top challenge facing renewables investors, with 73 per cent of respondents now citing this as a concern versus 55 per cent from two years ago.
“Investment challenges remain, not least those posed by inflation and high interest rates, but, as our study shows, investors are facing up to the headwinds and are ready to seize the opportunities that lie ahead,” Mr Harvey reasoned.
The firm noted that financing challenges may also create obstacles, of which more than half of respondents agreed. This was on the back of 91 per cent of investors claiming that new financing and refinancing for renewables projects will become more difficult in the year ahead.