JLL sees investment opportunities in “surging demand” for alternative energy
Georgia Roach | 18 November 2019
International real estate and investment management firm JLL has added to its voice for the future of renewable energy. A new report released this week forecast continued coal-fired station closures and rising renewables, despite the gap in federal policy and grid stability.
The report said renewable energy sources will inevitably form part of the country’s energy solution, and noted that investment in the sector would rise in “significant waves” over the decades to come.
It concluded investor confidence in Australia’s renewable energy market has been high, but that it is “currently facing uncertainties”.
Chief among the uncertainties highlighted in the report was “the absence of a federal policy on renewable energy” as well as complexities in the national grid which was built to support our aging coal-fire generator stock.
“Nevertheless, it has become clear that Australia’s electrical grid is in the midst of a transition from traditional (coal and gas) energy sources to renewables,” the report stated.
This comes as “almost all” of Australia’s current ageing coal-fired generators will necessarily be retired by 2050 due to their average age being 30 years of an up to 50 year technical lifespan.
It comes also as international investors set their sights on Australia’s attractive, low-risk renewable energy environment.
From a financial standpoint, Jordan Berryman – report co-author and senior director at JLL, alternative investments – says the transition to renewables makes sense.
Particularly given that while the cost of operating coal plants is inexpensive, the cost of establishing new ones makes them “one of the most expensive forms of electricity generation”.
“We believe that renewables will compare well to adjusted risk returns on other asset classes, and benefit from alignment to strategic infrastructure,” Mr Berryman said.
As the public and private sector enter into renewable power purchase agreements (PPAs) at increasing rates, this is likely to accelerate the transition and influence political change.
There are three areas with increasing investment opportunities, the report says” energy generation, transmission and storage.
With generation the “investment case and bankability for generation development is inherently linked to demand”. So as the public and private sector enter into renewable power purchase agreements (PPAs) at increasing rates, this is likely to accelerate the transition and influence political change.
In terms of energy transmission, the existing network would need to undergo vital updates to move away from the coal and gas-powered plants it was built to serve.
Projects such as the proposed $1.5 billion interconnector between NSW and South Australia through Victoria if approved, “could provide greater energy security, as well as improved integration of renewable energy into the NEM for Australia’s eastern states”. The report also pointed to a second Bass Strait interconnector in the proposal stage.
The third area for potential investment – energy storage – was highlighted as “essential to manage disproportionate generation and remove large swings in spot pricing”.
The South Australian Hornsdale Power Reserve (HPR) for instance, a grid-connected energy storage system colocated with a nearby wind farm generated about $29 million in revenue in 2018 for owners Neoen Australia.
These returns are significant, according to Mr Berryman, but should not be expected once “the cost of energy has been levelised and spot pricing fluctuations have been normalised”.
“The investment case for storage is an important component of renewables success,” he said, “and needs to be considered in a holistic association with generation.”
In all, the report concluded the country’s energy market is evolving.
“JLL recognises that the way Australia generates, uses and stores energy is changing,” Mr Berryman said.
With investment in the alternative energy sector reaching more than $20 billion in 2018 alone, JLL is “ramping up” its work with investors in the alternative energy sector to match steadily growing demand.