Investment
Renewable energy: Investing in an evolving generation landscape
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Over the past decade, wind and solar have provided the bulk of additional generation capacity to the National Electricity Market (NEM), replacing retired coal and gas-fired plants. Despite a significant number of regulatory and policy changes directly affecting the relative economics of the different sources of generation, wind and utility-scale solar generation capacity has more than doubled, from 2.3GW in 2012 to 4.8GW in July 2018, with a strong acceleration over the past 24 months, in particular for utility-scale solar.

Early in 2018 the Clean Energy Regulator (CER) announced that there were enough projects at a sufficiently advanced stage to meet the large-scale Renewable Energy Target (RET). This represents a remarkable achievement considering that just over half of the target had been met at the beginning of 2017.

Notwithstanding the considerable growth, wind and solar generation capacity still represented just 12 per cent of the generation capacity in the NEM as of July 2018. Given that more than 60 per cent of the NEM's existing coal-fired generation capacity will reach the end of its useful life by 2040. It is estimated by Bloomberg New Energy Finance that 90 per cent of the forecast $88 billion to be spent adding power and replacing capacity in Australia until 2040 will come from renewable energy.

Clearly, renewable energy is expected to continue to grow in market share and play an increasingly important role in the Australian energy market. Three key drivers are supporting this wave of investment in wind and solar generation over traditional generation sources:

  1. Compelling economics for renewable energy compared with the cost of alternative sources of generation;
  2. Improving grid integration cost and reliability; and
  3. Increased availability of capital and offtake contracts to support renewable energy projects.
From its beginnings as a niche sector driving environmental sustainability objectives, wind and solar energy has evolved to become the new-build electricity generation source of choice and is poised to become an even larger proportion of Australia's energy mix.

Given renewable energy's low position on the cost curve, government subsidies will no longer be required to incentivise investment in the sector. In order to optimise outcomes for energy consumers, the government needs to shift its focus from pricing subsidies for renewable output to incentivising the development of dispatchable renewable energy solutions, such as the incorporation of batteries or pumped hydro.

In addition, incentivising investment in the NEM interconnections would also allow a whole of market approach to leverage generation resources across the country most efficiently.

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