Surge in Net Zero pledges from Aussie firms, but investors call for reform of green energy market

The number of Australian companies with Net Zero targets has tripled as investors in the country today call for reforms to make the renewable energy market more investable.   

The Clean Energy Investor Group (CEIG), whose members include Macquarie Capital, BlackRock and RWE Renewables, has made five recommendations to reduce the cost of capital for clean energy and drive investment into the sector in Australia.

The new ‘principles’ come as governments in Australia prepare to consider recommendations from the Energy Security Board on how the national electricity market should be designed after 2025. The market, which delivers energy to Australia’s eastern and southern states, accounts for around 80% of the country’s energy transmission.

“This decision will be watched closely by international and local institutional investors,” said the report, adding that the current market “is no longer fit-for-purpose” because it is not aligned with Australia’s commitment under the Paris Agreement. 

Under a scenario aligned with Paris, most of the coal capacity currently under the national electricity market will have to close before the late 2030s, with only 2GW of coal capacity left by 2042, according to research from CEIG. 

“The retirement of more than 20GW of coal capacity by 2038 happens at an accelerated pace compared to current assumptions,” the report stated. “This pace is equivalent to around 1 plant (or multiple units) closing each year, starting in 2023… In effect, multiple coal plants retire 6 to 7 years earlier than their technical end of life.”

CEIG said that the implementation of its principles – which also include plans to make revenues from renewables more predictable, allocate risk more effectively and establish an advisory council including investors – could deliver a cost saving of up to A$7bn (€4.2bn) on the current A$70bn renewables pipeline, with the cost of equity reduced by between 100 and 250bp.

Currently, the group says, clean energy investors face a number of excessive risks which drive up the cost of capital and delay projects – risks driven by policy uncertainty and poor regulatory design. 

Of the 82GW of proposed wind and solar in Australia, only 3GW has received investor commitment, with the investment deficit predicted to reach 48GW by 2042. 

Meanwhile, new research from the Australian Council of Superannuation Investors (ACSI) shows that the number of companies in the ASX200 with a Net Zero target has tripled – with most commitments including plans for “a rapid uptake of 100% renewable energy”. 

By the end of March 2021, half the market capitalisation of the 200 biggest companies listed on the Australian Stock Exchange was covered by a Net Zero commitment, according to the figures. 

“There are now 49 companies with Net Zero commitments, up from 14 in the previous year, demonstrating that corporate Australia has acknowledged the need to adapt to a low-carbon future,” said ACSI. 

It added that it expected the majority of ASX200 firms to be reporting against TCFD recommendations by next year, with 80 companies adopting the framework, a further 18 making a commitment to adopt it, and 17 reviewing the option. More than 60 companies are now conducting climate scenario analysis, but only 26 of those are stress testing their business against a 1.5℃ scenario.