PRICE We are very much at the beginning and a tremendous amount of renewable power generation still needs to be built. Australia has great penetration of rooftop solar, but utility-scale onshore renewables are still very much in a growth phase, and the offshore wind industry is at the very start. In order to meet emissions reduction targets, Australia will need to bring on clean power at a much faster pace.

STUART Australia was on the sidelines for a long time given the politics and policy uncertainty. It is helpful that the country now has a target – and we are also seeing Australian corporates come out with their transition plans since the targets were adopted. APA Group released its climate transition plan in August  2022. 

The transition journey will not be linear and there will be bumps along the way, but I really believe we are in execution mode now. It is a really complex, multifaceted problem – we all know this – and it will require adjustment along the way. These are big macro changes we are going through.

EWINGS I agree the energy transition will not be a straight line. At entity level, emissions fluctuate depending on where the organisation is in its transition strategy and as a result of external factors. Managing market expectations on this point is an interesting challenge for companies.

At transaction level, I do not think the consideration of social risk and the need for due diligence, and capability in this area, is discussed enough. For instance, the sophistication of a company’s supply chain management and its ability to manage the related vulnerabilities and volatility should be considered. Supply chain issues have slowed down some renewables projects.

The consideration of human capital is also important, including the skills required for successful execution of major projects and the creation of cultures supportive of the significant shifts required in businesses as they transition.

Finally, effective stakeholder engagement is important to any new, large-scale operation – and renewables are no exception. It is something investors need to be very attentive to. Transformation is not easy, though we often talk about it as if it is. It is often these social factors that can hamper execution.

STUART We are at a really important juncture, which means transparency is important. We are at the very start of a big process, having sat on the sidelines, in comparison with Europe and the Inflation Reduction Act (IRA) in the US. But we are now at the start line. I am also hugely interested in the investment opportunity – and more needs to be done to encourage investment.

TOME Comparing Australia with Europe comes down to stakeholder engagement and social licence. When we have done community engagement sessions on offshore wind, people who originally came from Europe say ‘why hasn’t this happened in Australia already?’ Then we talk to Australians and they say ‘why are you putting offshore wind turbines in our ocean?’

A lot more education needs to be done by governments to outline what is required if Australia is to get to net zero. We need renewables and we need them at sufficient scale that there will inevitably be some sort of visual change.

DAWSON There is good recognition of the need for renewable energy but it is nonetheless challenging when talking to people who have lived on the land for generations. A solar farm, wind project or large-scale battery will change the landscape and thus what people have grown up with.

It is very easy to believe we are wearing a green halo as a renewable energy developer, but it is understandable that some communities may feel they are bearing a burden for the ‘city folk’ – that electricity generated in their region will be consumed by people in town. The social justice element is very important.

The more we can do to engage early and meaningfully with communities, the better – such as giving them input at the design stage or providing well thought-through benefit-sharing programmes. The hope is that, beyond clean energy, they will be able to look at a wind farm, or whatever project it might be, and see the health services, education services and local infrastructure that come with it. It presents an opportunity to bolster local economies with training and employment opportunities that can last decades.

DAWSON It has been a completely different proposition talking to communities in the South West REZ [renewable energy zone] in New South Wales (NSW) compared with some other communities. The main difference in the South West REZ is that the population is hugely dispersed and the projects have minimal visual impact on communities. A handful of people will see turbines a long way away.

In this area, we have support for the benefit our projects will bring – we are not encountering any resistance to the projects we are bringing forward. This experience contrasts to some extent with other projects, where there is felt to be more impact.

STUART A key focus is the transmission required to link inland REZs with coastal cities. In some instances there is community opposition. The NSW government has devised a mechanism for payment to landowners who host transmission, which naturally will be included in the cost of electricity to the consumer.

At APA, we have been dealing effectively with landowners for many years in the context of gas pipelines. The difference is that gas pipelines are mostly underground. Estimates vary but the general consensus is that the cost of underground electricity transmission is at least 3-4 times as much as above ground so, again, it comes down to cost.

Despite the fact that offshore wind is expensive to generate – the latest I’ve heard is more than two times – there may be a place for it as it can be located closer to where power is needed. These are all questions about who is willing to pay for the investment to deliver decarbonisation and over what time frame.

DAWSON This is an important point. The narrative from the government to date has been that, with our abundant wind and solar resources, renewable energy is going to be the cheapest form of electricity. But the transition to renewable energy is costly – there has to be an upfront investment before consumers see electricity prices come down.

ANJUM Net zero by mid-century is the biggest industrial transition the world has ever seen. A key impediment is trust and mutual respect. This means trust between the government and the private sector, between developers and communities, and between suppliers and customers.

I agree there needs to be a lot of education about the value we are adding by moving to renewable energy, and it can’t just be economic value – it must be social value as well. What are we doing to improve the energy literacy of affected communities? How are we upskilling the energy workforce to allow people to work on renewable assets? It can’t just be a policy-level declaration with not much behind it.

STUART APA has just completed new bank debt financing and it appears that there is appetite for energy infrastructure debt investments – perhaps with the exception of coal infrastructure, which requires an appropriate premium. Energy infrastructure is an essential service, so sensible investors will invest for the long term.

Transition is a hugely interesting area for investment. Taking carbon out of the system will be a lumpy, not a linear, exercise. For example, APA’s emissions will rise on day one following the acquisition of Alinta Energy Pilbara, but we have a plan to reduce the emissions of APA and, more importantly, the broader system over time.

We will build renewable energy to replace existing gas baseload and use the gas baseload in a different way – so it becomes a firming product that is used less, but used when needed, to ensure reliable energy supply.

PRICE Long-term power purchase agreements (PPAs), which are offtake agreements at a contracted price, are needed in order to get the most financing. Renewable PPA terms typically aren’t as long in Australia compared with other jurisdictions. We have a higher proportion of merchant or spot price, and it can be harder to finance this with material amounts of debt.

ANJUM There are a lot of concerns to be considered, such as connection to the grid, offtake agreements and curtailment – which is direction from the market operator to stop supply when the grid is constrained. Financiers likely need to be involved a lot earlier in the process, as they are with other large-scale capex projects.

The other challenge we are facing is that other technologies we are not aware of yet will be needed to transition to net zero, such as different types of storage solutions. These will likely be funded by equity rather than debt capital. The question is what we are doing to progress technologies that could be the solutions of the future.

EWINGS Yes, but there are ways to get more comfortable. One is to invest in companies that are doing pilot projects but where hydrogen is not their core business. This gives the investor a lower-risk way of getting exposure to emerging technologies, while enabling it to increase its capabilities in these areas at the same time.

STUART APA is currently reviewing a hydrogen opportunity and we have been discussing how much project debt funding would be available. Fundamentally, if there is an offtake agreement or other supporting revenue stream – say from the government – from an economically rational perspective there will be a level of debt funding available.

This speaks to Kara’s point about the contractor profile for PPAs. Then it is simply about there being a different debt coverage ratio for contracted cash flows versus merchant or re-contracting risk.

ANJUM A point to remember regarding the federal government’s A$2 billion (US$1.3 billion) Hydrogen Headstart programme is that developers have to compete for the capital, whereas in the US anyone that meets the criteria for the IRA is able to access funding. This brings up, once again, how our policy settings need to change to facilitate capital going into renewables infrastructure.

PRICE Independent renewables developers actually hold a significant amount of the market for wind, solar and BESS [battery energy storage system] projects and will be important to driving the build and growth needed in the sector. As a group, the gentailers overall are focused on building their pipelines of renewables projects as they work toward transitioning their businesses and reducing emissions.

While there are a lot of independent renewables developers – some grown locally, others established locally by global platforms – consolidation of these players is likely to continue to occur given the number of participants, shortage of human resources and strong need for more growth.

Even though the independents are driving a lot of the growth in the sector and are competing for projects with the gentailers, the gentailers maintain the customer connectivity. This may give them the upper hand when considering consolidation in the sector.

STUART I believe there will be consolidation in the renewable generation market in future. Diversification and scale is helpful in a renewables generation portfolio, and so too is not being overleveraged. Flexibility is important, noting that we are in a rising interest rate environment.

VANSTONE This is a great point. We have had a low interest rate environment for years and, at the same time, transition investment is going to be very inflationary. We are talking about a multiyear transition, and there is a cost to it.

STUART There is appropriately priced capital available for attractive investments. Yield plus growth is important to APA’s securityholders. There may be more flexibility for unlisted investors in this respect, but this depends on the profile of the liabilities of the various infrastructure funds.

In the electricity transmission asset class, this is typically regulated. The AER [Australian Energy Regulator]’s most recent rate of return is 5.85 per cent, which may not necessarily reflect greenfield risk – which will be required for the transition. A deeper understanding of risk in transition projects is needed, and rising interest rates will likely lead to more thoughtful investment.

VANSTONE There is still a wall of capital and liquidity out there. Getting it deployed in the right way will determine whether the price tension is right.

STUART I am often asked about the importance to the APA business of household gas, particularly with respect to the recent Victorian policy on gas connections. But domestic gas usage is only approximately 10 per cent of total Australian gas consumption. We must recognise that a lot of industry requires high-intensity heat from gas, and we do not have a replacement for it at this time.

The resources sector is a large emitter given its use of diesel in electricity generation and haulage. Miners are very focused on reliability of energy supply, because they need their operations to run 24/7. Most of the major miners – BHP, Rio Tinto and Fortescue Metals Group – have emissions reduction targets and these big companies need to deliver upon them.

These firms are laser-focused on cost; they want to remain at the lower end of, for instance, the iron ore curve globally, because they compete globally. My sense is that these customers are willing to pay to deliver decarbonisation.

These operations are remote and they are looking at hybrid solutions, including solar and wind, together with firming. There is no wind generation in the Pilbara region yet, but it will be exciting to see it develop. If there is a wind or a solar drought these miners need to have access to backup power from gas or batteries, because they need energy 24/7.

STUART The major miners can potentially deliver or procure dedicated energy solutions but the smaller miners might find it harder. In the Pilbara, there may be a place for a shared infrastructure model.

There are many issues in the Pilbara region including that the community – the traditional owners of the land – must be consulted and included in the process. We should recall the issues around rail duplication to connect the mines with Port Hedland. I don’t think the Western Australian government or communities want duplicate electricity transmission lines going from inland to ports, and I don’t think it necessarily makes sense economically, either.

But how do we get the major miners to come together and share infrastructure needs? I think an independent infrastructure owner may be an effective solution. The bundled solution APA offers is not just renewables plus gas, it is renewables plus gas plus batteries plus electricity transmission. n

EWINGS Flexibility should certainly be a key principle in any project, to avoid locking in things that preclude further transition in future as technologies mature. This is even before we talk about the physical risks of climate change and what they might mean as an additional impact on energy security.

ANJUM Australia’s exported emissions are more than double what we generate onshore and we need to explore this, too. Should we, for instance, be working on a transition to green steel exports as opposed to iron ore? What does investment look like for this change, if so?

EWINGS This highlights the need for collaboration in a range of hard-to-abate sectors where investment in R&D for transition is significant. The risks here are not necessarily from immediate competitors but rather the potential for disruption.

ANJUM So many projects are going on. I can think of a company that is developing a gravity energy storage solution, another that is working on molten salt batteries – there are so many technologies coming along.

We need to invest in these technologies, too – we can’t just go hard on the things we have right now and ignore others that are coming up on the periphery. Emerging technology is also really important.

EWINGS It gets to the point of maintaining flexibility, so we are not locking out options and still have space to pick the winners over time.

PRICE It is becoming increasingly likely that different geographies will specialise in different collections of solutions, depending on what resources are available locally. For instance, pumped hydro could be a good solution for some regions but it is clearly not available everywhere.

ZHONG With the exception of projects that attract grant funding from the Australian Renewable Energy Agency, for example, the foremost consideration is equity risk. Then it is a question of what types of equity it is – from major fund managers to venture capital investors. It is often a mix.

There has been a trend over the last two years or so of getting funding under an energy transition banner. A lot of standalone funds with this type of label are new mandates with a new fund raise that has the energy transition very much at the forefront.

Out of this big pool of money there is a small subset of private capital that, together with government support, can provide early-stage capital for emerging tech opportunities.

PRICE In October, the South Australian government announced a 250 megawatt electrolyser facility, where the government has dedicated A$593 million to the project in addition to other initiatives supporting the hydrogen industry within the state. Most developers of green hydrogen facilities today cannot make the economics work without government support to get these projects going.

ANJUM To me, relying on the depth of the government’s pockets and how willing it is to continue to provide support feels like a constraint. When we talk about bringing in financiers at an earlier stage, it seems like a catch 22 situation: we want to get them involved but we can’t get them involved too early. We want to bring them along but some of the risk needs to be shared by them, too.

I worry that we are not going to get early-stage investment of sufficient scale for as long as the only value attached to renewables is economic. We need to really explore what else an investor is buying into beyond a return.

PRICE On the positive side, everybody is focused on energy transition and wants to put capital to work. But it needs to be a smart investment. Banks in Australia are able to learn a lot from their European counterparts, which are further advanced in financing budding industries like hydrogen, EV [electric vehicle] charging and offshore wind.

VANSTONE It also comes back to allocation of capital. There is a balancing effect about target return. Management teams and boards will adjust their policies and strategies to address key stakeholder concerns, which will influence return hurdles and how companies assess investments. This is what has driven change in the first place.

EWINGS I think we are seeing this already. The IRA has certainly meant there has been a huge attraction of skill to the US market. The war for talent in this space is very real.

PRICE The number of people in the renewables space relocating to Australia with their companies to build a bigger presence here has increased. But overall there is still an absolute shortage. We need people in all our teams, and my guess is that everyone here today has open roles they need to fill.

ANJUM Recent global conflicts have raised concern about energy security, which is driving investment and maybe even accelerating the transition. Solutions can leverage technology across geographies. For instance, we have come up with a way of retrofitting power stations with carbon capture and storage capabilities in a really efficient way. We should be able to share this solution and roll it out so it can be scaled up much faster.

It is just a matter of whether or not corporations are willing to lose competitive advantage and share patents across countries. We really need to be able to underpin the transition with information sharing.

TOME This is a good point. Everyone needs to ensure the business case stacks up for their respective projects, but essentially we need to work together as an industry to get offshore wind, for example, off the ground.

We need to start preparing the workforce for offshore wind projects through attracting the next generation to the industry and transitioning the retiring coal workforce to offshore renewables. We already have a shortage of electricians for solar, and we need to make sure we start training new talent and transitioning a workforce for the offshore wind industry now.

We need to do this collaboratively as an industry, otherwise we will not have a qualified workforce by the time we commence construction and operations of offshore wind projects in the next 7-10 years.

DAWSON Efficiencies can also be taken when we share lessons learned, and this is important given the pace at which we need to move. Government and industry can both play a role in information sharing.
Conversely, lack of feedback can lead to spinning wheels and wasted cost. For example, for the Hunter offshore licence application process in NSW it would have been very valuable to have been able to take lessons from the outcome for developers in the Gippsland offshore wind process, given the criteria being assessed are the same.

Participation in the application process requires a significant commitment of time and money, and if we had the benefit of taking lessons learned we could have been more efficient in our approach.

TOME Exactly. We need to apply lessons learned to better ourselves. There is a risk of working in silos as competitors, but we need to avoid this if we want to accelerate the offshore wind industry in Australia.

Take community engagement, for example. If all proposed projects within a declared area went out and conducted community consultation before having secured a feasibility licence, we would be creating confusion and consultation fatigue within communities.

We are proposing to conduct community consultation in collaboration with other successful proponents after the feasibility licence award, at one location where community members can talk to all successful proponents in the same place.

The community will have access to several proponents at the same time as it is not feasible for the community to attend several consultation events. Additionally, this would provide the community with a holistic picture of the overall development plans for the declared zone.

TOME One of our first projects was in Germany, where the auction system works differently. A pre-qualified site, together with the grid connection and the offtake, is auctioned off, taking some of the permitting and commercial risk out of the process. This does not preclude the developer from conducting extensive environmental studies for its specific project but essentially there is some certainty that no early red flags have been raised in preliminary studies during the pre-qualification of the site.

Since we are about 15 years behind with offshore wind in Australia, the government didn’t have the time to conduct such pre-qualification environmental baseline studies before declaring offshore wind zones. Therefore, developers are faced with some environmental risks as there is little to no baseline information available on the declared zones.

Additionally, once a site has been secured through a feasibility licence award, developers continue to compete to secure grid connection and offtake as these are separate processes in the Australian system – increasing the overall project risk.

TOME No, not at the moment.

TOME It is clear thar it is important to engage early and to be transparent, open and honest in any kind of stakeholder engagement. Also, the developer and government should provide the same messages.

For the Hunter process, for example, we have stayed away from conducting community consultations because we think it is actually very confusing to the community if 15 or more developers consult with it about a project that hasn’t yet secured a feasibility licence.

In order to avoid confusion in the community as well as consultation fatigue, we have purposely not consulted with the general public but have discussed our project plans with state and local governments, commercial and recreational fisheries, NGOs, and special interest groups.

What we will propose, once we have secured a licence, is to work together with all the developers in a collaborative approach. This may mean a community information event where all developers provide information about what is happening in their specific project and that also provides an overview of the build out of the whole zone. There might be three or four successful developers working on projects in the Hunter region, there might be 8-10 in Gippsland. There is a lot of concern and confusion in the community, so a coordinated approach is key.

STUART I actually think offshore wind may be good for neutralising some of this community objection, because – especially in Victoria, where there is not much available land – people are really focused on getting a good alternative power source and allowing prime farmland to continue as is.

TOME Victoria has set up VicGrid, which will establish dedicated connection points for offshore wind projects with substations close to the shore to avoid a ‘spaghetti wire’ of transmission lines. I believe this is a great initiative.

Policy for offshore wind in NSW is still a work in progress when it comes to setting up the various processes, procedures, targets and support schemes for offshore wind. This is a critical factor in getting offshore wind off the ground in NSW.

At the moment, investors are gravitating toward Victoria because there is certainty on a target for offshore wind: a proposed support scheme is about to be put in place, while there is nothing in any of the other states. There is more investor certainty in Victoria.

ZHONG A proposed revenue or capital support scheme would definitely be one of the key attractions.

ANJUM Necessity is the mother of invention. COVID-19 showed us that it is absolutely possible to work together globally and deliver something if we have a collaboration and coordination mindset.

DAWSON The fact that we now have a target is essential. It took way too long to get it. We are behind where we need to be, especially in relation to 2030. We need more consistency across jurisdictions, and all of us in our respective fields need to be able to push forward with what is a huge amount to be done with the certainty that what needs to be done will receive the government support it requires to be delivered to get to the targets.

TOME We can get there. It will be a lot of work, but if we collaborate and work together as a renewables industry – whether it be onshore wind, offshore wind, solar, gas firming, or other opportunities for firming such as long-duration battery storage – together with government support to give investors certainty, I think Australia can achieve its ambitions.

STUART I like the act of setting intention. Whether Australia will achieve the 2030 target, I honestly do not know. But by having the intention, we have begun to walk toward it. I have no doubt, though, that government support will be critical to achieving the targeted outcomes.

EWINGS The fundamentals are strong. Australia has significant mineral deposits – which are vital for transition – and good inputs for renewable energy via our natural assets. In addition, we have a stable economy and political environment. This means we are well placed, despite the fact that we have been slow to act. The challenge is trying to manage the tension between the need for good, considered planning while also leaving sufficient flexibility for emerging solutions. We effectively need to create an adaptive system.

PRICE I am optimistic Australia will get there. Australia has hosted big events that are very well organised and run like clockwork so I don’t think Australia’s ability to tackle big problems can be underestimated. Innovation in energy transition is happening in real time, leading to more efficient solutions than what we have in front of us today.

It is the biggest challenge of our time and we do not necessarily know what the path will look like or what the world will look like at the other end. But the world – including Australia – is making progress.