Speaking at the ASFA Conference on Wednesday to an audience of superannuation fund representatives, Dr Guy Debelle, former deputy governor of the Reserve Bank of Australia, emphasised the potential for the superannuation sector to play a pivotal role in financing the country’s transition to a low-carbon economy.
According to Dr Debelle, Australia possesses an overabundance of renewable energy capacity, far exceeding domestic needs. The focus, he suggested, should now shift to accelerating the deployment of this surplus to meet the government’s target of 82 per cent renewable energy by 2030.
He noted that the current pace of deployment falls short of the required trajectory, urging a significant acceleration in the sector.
“We aren’t moving anywhere near as fast as we need to in terms of deploying that renewable generation capacity. The government has an 82 per cent renewable energy target by 2030. Five hundred megawatts a year isn’t going to get you anywhere near 82 per cent by 2030,” Dr Debelle said.
For the superannuation sector, the investment opportunities lie in financing multi-year projects that align with the patient capital characteristic of super funds, Dr Debelle said, and underscored the longevity of green energy projects which often span decades.
“They’re multi-year projects and take one or two years to deploy, or even two or three years to deploy, but the returns are 15, 20, 30 years. The energy contracts in green energy almost certainly are going to look a lot like those in the LNG industry which are 10, 15, 20-year offtake contracts,” Dr Debelle said.
He also identified investment prospects in the critical minerals space and encouraged funds to turn their attention there.
“In the critical minerals space, I think the investment opportunities, to my mind, at least given where that industry sits currently, look more like a sort of venture capital approach, a sort of fund approach,” Dr Debelle said.
“You can do your basic due diligence and probably look and find about 20, half decent critical minerals prospects, four or five of them are probably going to pay massive returns,” he noted.
Despite acknowledging the challenges for super funds in fitting such opportunities into their investment structures, he hinted that the prospect of massive returns outweighs these challenges.
“Now I know that’s a challenge for a lot of super funds to work out how they fit that in their investment structures.
“But if you wait until those prospects are looking really firm, then you’ve probably already missed the large chunk of the upside, and they start to look a bit more like utility returns.”
Furthermore, Dr Debelle reiterated the necessity of significant capital expenditure in the energy generation and transmission space and clarified that a substantial portion of the funds required for the energy transition represents necessary capital expenditure to replace outdated infrastructure.
“There is also great opportunity in the generation and transmission space which require large amounts of capital,” he explained.
“One thing on the size of the investment opportunity here, I think it’s important to keep in perspective when people talk about the cost of the transition or the amount of funds which need to be deployed into that, at least when it comes to generation in this country, a lot of that investment in new generation capacity I would describe as basically depreciation capital expenditure.
“We have, regardless of what technology we wanted to deploy, the existing generation capacity in this country is very rundown and needs to be replaced with something.”
Turning his attention to Australia’s sustainable finance framework, Dr Debelle highlighted that he believes mandatory disclosure around climate reporting for ASX-listed companies will be legislated in the new year, which will be “very useful” for the super industry.
“[It means] a lot higher quality, and consistent information around corporate disclosure in the climate space than you [super funds] have currently. So, it provides a lot of information to make informed decisions about how you want to be deploying your capital,” he said.
“That is very much aimed at helping capital allocate towards the transition, we need a lot of capital to be allocated to the transition [of] this country. I don’t think it’s a hard ask, because the returns are actually there.”
