NSW clean shift makes it pin-up state for renewable investors, but grid issues linger

New South Wales has become the most attractive state for investors in Australia’s renewable energy market, as concerns around grid connection, future network regulations and generally unhelpful federal government policy continue to undermine overall investment confidence.

New data from the Clean Energy Council’s bi-annual survey of renewables industry leaders has revealed that challenges around the grid connection process and technical requirements remains the top concern among investors, continuing a trend established in July 2019.

This, combined with unpredictable regulatory changes and federal government intervention in the energy market, has resulted in investment confidence decreasing slightly to an average score of 6.7/10 since the last CEC survey taken in July (7.3/10), even despite the positive work being done by state governments, the CEC found.

The concerns around grid connection roadblocks are hardly surprising, at the end of a year where the Australian Energy Market Operator has consistently warned of network capacity being reached on parts of the National Electricity Market.

A key example of this has been the West Murray Zone that straddles north west Victoria and south-west NSW, where ongoing grid congestion and voltage issue have seen the output of five big solar farms cut by half for months. The country’s biggest wind project, the 530MW Stockyard Hill wind farm, is now built but sitting idle because it cannot obtain registration with the market operator.

The respondents to the CEC survey said it wasn’t just the known grid issues that were undermining confidence among investors in large-scale solar and wind energy projects, but “unpredictable changes” to grid connection requirements and protracted processes.

“Grid-related issues remain by far the biggest challenge in development, construction and investment in general,” said one survey respondent in comments recorded by the CEC. “Not just that it’s hard, that it’s random.”

In July of this year, this “randomness” was also experienced first-hand by developer Tilt Renewables, when “unanticipated concerns” from AEMO resulted in a delay to the powering up of its 336MW Dundonnell wind farm in Victoria – an outcome Tilt described as “unfortunate” given it had followed the prescribed connection process.

To this end, under-investment in network capacity to address grid congestion and constraints was cited as the second biggest business challenge, although as one survey respondent noted, this is currently being addressed via new infrastructure investment, including new inter-state transmission lines, and through the states’ creation of dedicated Renewable Energy Zones.

The importance of these zones to investor confidence was neatly illustrated just last week, when the Queensland government reported that it had been flooded with expressions of interest in building out the state’s REZs – proposals for enough projects to create 60,000 megawatts of clean energy.

But it was New South Wales that impressed investors the most over the past six months, doubtless boosted by the $32 billion plan for new electricity infrastructure, unveiled in the first week of November.

In scores out of 10, New South Wales rated a nation-leading 7.6 for investment confidence, followed by Victoria and Queensland on 6.5 each, and then Western Australia and Tasmania – with its 200 per cent renewable energy target – at 5.2 each.

The number three issue worrying investors was future market design uncertainty; an entirely rational concern considering the rapid transition from a centralised NEM built around “baseload” coal plants, to a grid powered by distributed renewables and balanced by storage and other new energy market technologies.

On this front, the Australian Energy Market Commission is currently considering a number of proposed rule changes, including to reform the way “system strength” is accounted for in planning the energy system. But as Michael Mazengarb reported here last week, the wheels of progress turn slowly at the AEMC, due to the great complexity of the tasks and the number of parties affected by their outcome.

Ranking fifth on the CEC’s list of concerns dampening renewable energy investment confidence was the stubborn and peculiarly Australian problem of a lack of long-term integrated federal energy and climate policy.

As RenewEconomy has often noted, the federal Coalition doesn’t seem to care for renewable energy much at all, nor for Australia’s role in combating climate change, and instead continues to try to prop up the declining coal industry, rather than help it transition smoothly into retirement.

Any suggestion this attitude might be changing was waved away last month by the reaction of the party’s right wing rump to the NSW Coalition government’s warm embrace of renewables.

“Conflicting government intervention at state and federal levels is making investment decisions very difficult,” remarked one of the survey respondents. “Coupled with market reform it makes our Board nervous.”

And another added: “Recent NSW and Victorian government announcements have increased [the investment confidence score] for me. It would be 2-3 otherwise, based on federal policy.”

All of that said, overall investment confidence has increased from 6.1 in December 2019 to 6.7 in December 2020, with the industry citing state-based targets a key reason for investment certainty. Thank goodness for the states.