Climate change policy discontinuity & Australia's 2016-2021 renewable investment supercycle

Renewable entry costs, project finance and the role of revenue quality in Australia's National Electricity Market

“…Many works have acknowledged the desirability of revenue security in order to achieve bankability of VRE project finance (Nelson et al, 2013;Steffen, 2018;Simshauser and Gilmore, 2022). Price volatility in the NEM's energy-only gross pool, along with variable generation conditions creates an environment where some form of hedging is ultimately important to achieve a minimum level of revenue certainty.…”

“…As with other energy markets, the NEM is transitioning towards rising levels of VRE Pollitt and Anaya, 2016;de Atholia, Flannigan and Lai, 2020;Simshauser and Gilmore, 2022). However, over the past decade investors in Australian VRE projects have been forced to contend with considerable policy uncertainty (Nelson et al, 2018;Nelson et al, 2022).…”

“…Yet once Australia's two parties settled on a revised RET policy in 2015, record investment commitments in Australian VRE projects would follow. As noted in Section 1, from 2016-2021 investors committed to 135 VRE projects totalling 16,000MW of generation capacity worth ~$26.5 billion (Simshauser and Gilmore, 2022). de Atholia et al (2020) distinguish this recent period from the past decade, noting significant investment increases in large-scale VRE projects primarily driven by the private sector.…”

“…As Engelhorn and Müsgens (2021) explain, VRE is a global megatrend. Australia's National Electricity Market (NEM) experienced a renewable investment supercycle -135 VRE projects totalling 16,000MW worth more than $26.5 billion was committed during 2016-2021, with the market share of coal-fired generation falling rapidly (Simshauser and Gilmore, 2022). What makes this renewable investment supercycle all the more striking is that it followed a two-decade long climate change policy war between Australia's two main political parties (Simshauser and Tiernan, 2019;Nelson, Nolan and Gilmore, 2022).…”

“…Survey data is used as inputs for the relevant PPA scenarios, ensuring results are novel and reflective of current industry practices and investor expectations. Additional secondary data (see also Simshauser and Gilmore, 2022) was also compiled from a range of sources and databases in order to provide additional robustness. The resulting dataset represents one of the more comprehensive collections of NEM VRE project data at the time of writing.…”