Outlook for clean energy hits record low due to connection issues, policy vacuum

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Clean energy business leaders say fall in investor confidence the result of federal policy vacuum and growing connection challenges and delays.

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Australia may well have enjoyed the biggest boom in wind and solar investment on record, but confidence in future investment has fallen to a new low, due in part to stricter technical demands and also the lack of policy leadership from the federal government.

A survey of 70 business leaders undertaken by the Clean Energy Council cited growing difficulties in connecting projects to the grid, causing delays and curtailments, and ongoing uncertainty over federal energy policy as the leading causes of the fall in  confidence within the clean energy sector.

The ‘investment confidence score’ calculated by the Clean Energy Council based on the survey responses from clean energy CEOs and senior executives fell to a record low of 6.1 out of 10, down a whole point from a 7.1 out of 10 confidence rating recorded just 12 months prior.

“As we have consistently said, without strategic and holistic reform of the Australian energy market, we are going to continue to see confidence in new clean energy investment continue to fall,” CEC chief executive Kane Thornton said.

Australia’s clean energy sector has enjoyed a period of strong investment in large-scale projects, driven largely by the 2020 renewable energy target , but the CEC says it has already observed a significant drop off in investment now that the target has been reached.

“This loss of confidence has already translated into a slow-down in investment – in 2019, we have seen an alarming 60 per cent reduction in investment in new clean energy projects from 2018 levels.”

Clean energy business leaders were asked about the challenges facing the industry over the next 12 months, with most concerns related to policy and regulatory barriers.

“The investment environment has become very challenging due to the lack of a federal policy to reduce emissions. Also grid and regulatory risks are very difficult to manage,” one survey respondent said.

cec sector confidence survey dec 2019

But despite the fall in investor confidence, an overwhelming majority of those surveyed expected that the level of employment within their business would increase over the next 12 months.

Seventy per cent of those survey expected their staffing levels to increase in the next year, compared to just 10 per cent of respondents who expected employment to fall. The remaining 20 per cent anticipated that their staff levels would remain unchanged.

The proportion of business leaders that expected to increase their staffing levels in the next 12 months was up slightly from the level recorded in July, indicating that while there has been a general drop in confidence within the sector, employment prospects in the clean energy sector remains strong.

“It is pleasing to see that despite the immense challenges facing the industry at present, around 70 per cent of respondents said they expected the number of people they employed to increase in the next 12 months,” Thornton added.

“This reflects the incredible gains the industry is making, despite the significant issues around transmission, grid connection and energy policy.”

Respondents cited both the connection process and onerous technical requirements for making grid connection particularly difficult.

The ongoing uncertainty over federal energy and climate change policy and the lack of a meaningful policy mechanism to reduce emissions and incentivise investment in clean energy projects was the second most frequently cited reason for a drop in sector confidence.

The federal 2020 Renewable Energy Target is already achieved, leaving the industry with no meaningful federal policy mechanism in place to provide an incentive for further investment.

Thornton said that it was imperative that strong federal policy was developed, to ensure sufficient investment in new projects was made, given the looming closure of a large number of Australia’s coal-fired power stations.

“Our existing fleet of ageing coal generators are becoming increasingly unreliable and will all be shut down by 2050. New large-scale generation is urgently needed to keep power prices down and ensure the ongoing stability of our energy system,” Thornton said.

“Australia has abundant natural resources and huge potential for renewable energy generation, but the industry has been plagued by policy and political uncertainty at the federal level for several years and we are now starting to see the impact of this.”

Under-investment in new network infrastructure and the ongoing uncertainty of the calculation of marginal loss factors, which have significantly impacted the revenues of some existing solar and wind projects, also ranked amongst the top five challenges identified by clean energy business leaders.

Earlier in November, the Australian Energy Market Commission rejected calls to change the methodology used to determine marginal loss factors in the National Electricity Market, despite fears the current methodology will disproportionately impact regional renewable energy projects.

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