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Rocky road ahead for global renewable energy sector investment: Deloitte report


27 August 2013:  Investment in renewable energy production in Australia will continue to be driven by national renewable energy target compliance requirements and the availability of government funding, according to Deloitte.

This is despite a new Deloitte global report, Alternative thinking 2013:  Renewable energy under the microscope, finding that global investment in the renewable energy sector fell by 11 per cent in 2012, and forecasting a continued decline in the short-term.

The report identifies trends and opportunities in renewable energy for developers, investors and policy-makers, outlines where significant barriers to progress lie, and suggests strategies for dealing with them.

Despite the recent decline in investment, the study finds that renewables are becoming less alternative and increasingly mainstream, with 118 countries now having renewable energy targets in place and the wave of public demand for clean energy increasing.

Deloitte Economic Advisory Partner and energy specialist Kumar Padisetti said: “Australian investment in the renewable energy sector is certainly and predominantly driven by the energy compliance requirements under the Federal Government’s Large-scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES).”

“And to some extent, having a LRET makes Australia a good market for renewable energy investments.

“With financing and funding also available via the Clean Energy Finance Corporation (CEFC) and the Australian Renewable Energy Agency (ARENA), as long as the LRET remains 20 per cent by 2020, we will continue to see growth in the renewable energy sector through to then.

“However should that change following the next periodic review by the Climate Change Authority, then the investment environment could also change.”

The Alternative thinking 2013 report finds that global investment is likely to remain subdued in the near term but this will change over the longer term as technology improves and costs decline.

The analysis outlines five crucial areas where planning and decision-making in the near term will be key:

  • Bridging the cost disparity gap with fossil fuels – globally, fossil fuels received almost twice the amount of government support than the total amount of public and private sector investment in renewable energy in 2012
  • Enduring the “shale gas revolution” which has created new uncertainty for the near-term investment prospects of renewable energies
  • Weighing infrastructure investment – in many cases, a lack of suitable regulatory frameworks for ensuring economic returns for the sector is a key deterrent to investment
  • Navigating the subsidy environment – with renewable energy targets and renewable power generation policies the most common
  • Coming to terms with energy “democratisation”, where conventional energy companies will need to sustain their businesses while also navigating a transition to a market were centralised power generation and distribution is less in demand, as consumers and businesses begin to generate their own energy.

The report says that companies must take advantage of the subsidies where possible, but must also develop a strategy that takes into account their eventual phase out.  

The current low cost of natural gas in North America and the possibility of this dynamic spreading globally will also suppress investment in renewables for the medium-term, but this is likely to ease as gas prices level out with rising demand.

Mr Padisetti said the five areas identified by the report were relevant to Australia in different ways.

“The cost disparity compared to fossil fuels is certainly relevant for the Australian renewable market,” he said. “Despite the generous levels of subsidy for renewables provided for under the LRET, our electricity prices are still relatively low.

“Current plans to bring forward the commencement of an Emissions Trading Scheme (ETS) to 1 July 2014, or the removal of any price on carbon, will also have an impact on investment decisions.

“Assuming, for example, that the carbon price falls significantly under an ETS, coal-fired generation will remain viable in the short to medium-term.

“Public demand for clean energy remains high, however end user energy costs have reminded consumers that there is a clear trade-off between a clean energy future and price.  

“Australia, in general, is also not inclined to investment in projects with technological risk. Given the risk inherent in developing technologies, the involvement of the CEFC and ARENA may not be enough to support all of the improved and new technologies emerging.”

Mr Padisetti said liquid natural gas (LNG), along with carbon, linked Australian energy markets to international energy markets.

“The future impact of shale gas and LNG will depend on where Australian gas and LNG prices go,” he said. “If they go up, we will also see an increase in electricity prices. The same will apply if the carbon price goes up. Anything that increases conventional power prices will help the outlook for the renewable sector.

“As far as energy ‘democratisation’ is concerned, power distributors need to understand there is technological disruption taking place in the market, and they have to prepare themselves for this.

“There is a lot of talk about reduction in electricity demand in Australia and, from a central planning perspective, we are observing some reduction in demand compared to the forecast. But the demand for electricity hasn’t come down that much, we are not seeing the demand on the network as this demand is being satisfied by solar panels and other distributed generation.

“Distribution businesses will increasingly need to look at investment strategies that support the development and growth of new technologies, be it distributed generation or demand management initiatives.

“Taking this view will ensure their assets are well utilised and they are still able to deliver reasonable returns.”

Access the Alternative thinking 2013:  Renewable energy under the microscope here.

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Kumar Padisetti
Job Title:
Partner, Economic Advisory
Tel: +61 3 9671 7200
Simon Rushton
Job Title:
Corporate Affairs and Communications
Tel: +61 2 9322 5562




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