The Australian renewable landscape continues to evolve, with the Federal Government’s increased involvement and investment in renewable energy projects at all levels, as Australia continues its push towards the target of 82% national renewable electricity generation by 2030. Notwithstanding the increased Government support, new and old hurdles for renewable energy proponents continue to impact projects of all types, and stand to impact Australia’s efforts to decarbonise.

Up to 2027, the International Energy Agency forecasts Australia’s renewable energy capacity is set to expand significantly to reach 40 gigawatts (GW), from 29.2 GW in 2022. This shift is not solely due to the increasing supply of renewable energy, but also partly due to the proportion of coal in the National Electricity Market (NEM) decreasing year on year.

This exiting of firmed capacity has the potential to have significant impacts on the NEM’s reliability and flow through cost shocks for consumers.

Consistent with previous years, several hurdles remain including reliability and stability of the grid, foreign investment challenges, labour shortages and general construction and connection delays. Notwithstanding this, we continue to see an uplift in the development of renewable projects, with underlying support from solar and wind Power Purchasing Agreements (PPAs).

We explore some of the key highlights from the last 12 months in the renewables industry and what we expect to see moving forward.

Federal Government – Capacity Investment Scheme & rewiring the nation

In November 2023, the Federal Government announced a major expansion to the Capacity Investment Scheme (CIS) which proposed to add an additional 32GW to the nation’s renewable capacity – this is explored further in our article here.

A notable limitation to the CIS, which has been a consistent obstacle for all new renewable projects, is that the Scheme does not address how the transmission and connectivity infrastructure will be built to support the increased capacity. This is intended to be the remit of the ‘Rewiring the Nation’ policy taken to the last federal election.

The ’Rewiring the Nation’ policy has taken several hits recently, with increased opposition from all sides of the political debate to the development of large scale transmission lines and renewable projects themselves. Landholders in rural and regional Australia have vocally objected to transmission projects running through their land because of the impact it will have on their agricultural use of the property in addition to diminishing land value and amenity impacts. While some environmental groups have objected on the grounds of impact to biodiversity and endangered species.

Landholder impacts are is not a new issue for renewable energy developments, but with the growth of the sector, communities are increasingly being impacted, with many not having the experience of co-existence that came from years of working alongside mining and gas proponents.

The need to develop an acceptable landholder engagement framework with a workable dispute mechanism process will be key to the success of renewable projects and the government policies themselves.

Grid wide – continual rise of rooftop solar

Solar power in Australia is the country’s leading source of renewable electricity. Green Energy Markets forecasts that rooftop solar capacity in particular is expected to grow to a projected capacity of between 66GW and 98.5GW by 2054, from current levels of 34.2GW (as of 31 December 2023). If these predictions turn out to be accurate, then the current NEM capacity of 55GW will be significantly exceeded. In particular, we have seen significant growth in industrial rooftop solar which is usually facilitated through PPAs. Using established infrastructure (such as shopping centres or warehouses) for solar installation, not only creates additional value out of unused spaces, but removes the barriers to entry seen when trying to develop a solar farm on greenfield sites.

Although this may sound like good news for decarbonisation efforts, the grid wide middle of the day output glut can cannibalise large scale solar projects by forcing the price into negative during the day. Without batteries or other storage technologies the benefit of rooftop solar is lost at peak morning and evening times, thereby creating capacity issues for the grid, requiring our ageing coal generators to turn on.

Further, the community battery trend continues to grow, as the Australian Government has announced a $200 million program which allows over 400 batteries to be installed across Australia. On the back of the Federal Government’s announcement, there is also growing activity at state and territory level, where local councils are beginning the rollout of these installations.

Corporates and PPAs

We continue to see growth in popularity for PPAs as corporates look to shore up the supply of clean renewable electricity for their operations and meet their own decarbonisation targets.

There are multiple ways to structure these arrangements, but we are seeing this most often achieved through a contract for difference (CFD) arrangement with a renewable energy project (often referred to as a synthetic PPA). This model provides benefits to both parties: developers can more readily secure financing and corporates get access to green products to reduce their carbon footprint.

However, the law has not kept pace with this PPA model with offtakers and proponents needing to carefully consider whether they are required to maintain an Australian Financial Services Licence (AFSL) because of the CFD arrangement. Failing to correctly negotiate and prepare these agreements can either see a party breach its requirements, or unnecessarily get itself into a position where they require an AFSL.

Victoria leading the charge in Australia’s offshore wind reforms

Offshore wind projects in Australia are lagging when compared to our international counterparts in Europe, with Denmark, Germany and the UK among the countries leading the charge.

Although Australia has great natural potential to develop offshore wind farms, it faces significant challenges with establishing the relevant infrastructure to distribute the energy generated from the turbines to the grid. High costs for the installation of offshore wind infrastructure continue to be a barrier to entry, however, we anticipate that these costs should start decreasing through improved policy and law reform.

One jurisdiction leading the way is Victoria. As coal-fired power stations are near closure, Victoria has legislated the following offshore wind generation energy targets in November 2023 with the intention of boosting confidence in wind power:

2GW by 2032 ➔ 4GW by 2035 ➔ 9GW by 2040

Following this announcement, the Offshore Wind Energy Implementation Statement No. 3 was released by the Victorian Government in December 2023, setting out plans to develop an offshore wind sector including its approach to procurement, transmission and the environmental protection.

Victoria’s framework to accelerate its offshore wind journey is a positive sign for more wind power activity to come, as Australia aims to unlock the potential of its abundant wind resource.

Queensland law reforms

Queensland’s first renewable energy legislation

Queensland’s Energy and Jobs Plan has been enacted into law, with the passing of the Clean Economy Jobs Act (Qld) 2024 (Clean Energy Jobs Act) and the Energy (Renewable Transformation and Jobs) Act (Qld) 2024 (Renewable Energy Transformation Act). The key elements of this legislation include:

  • enshrining Queensland’s commitment to achieving 80% renewable energy by 2035;
  • establishing frameworks for building Queensland’s SuperGrid and creating Renewable Energy Zones (starting with the Queensland REZ Roadmap released in March 2024);
  • a ‘Job Security Guarantee’ for employees and contractors at publicly owned coal-fired power stations and other prescribed facilities, whose employment is affected by the implementation of the renewable energy targets; and
  • establishing advisory bodies to facilitate and oversee implementation of the legislative targets and frameworks.
Confirmed targets

This legislation confirms the emissions reductions and renewable energy generation targets in Queensland, as follows:

Clean Economy Jobs Act, emissions reduction:

  • 30% below 2005 levels by 2030;
  • 75% below 2035; and
  • net-zero by 2050.

Renewable Transformation Act, renewable energy generation:

  • 50% by 2030;
  • 70% by 2032; and
  • 80% by 2035.

The new targets are intended to support industry growth and attract greater investment into renewable energy in Queensland. With current emission reduction from 2005 levels already at 29%, Queensland is on track to exceed the 2035 target. By legislating this target, the Queensland Government is making it clear that renewable energy activity is prioritised – which is evident through the recent investment by CleanCo in the Moah Creek wind farm.

European Carbon Border Tax

The European Union (EU) has introduced the Carbon Border Adjustment Mechanism (CBAM) which aims to prevent the risk of carbon leakage from the EU’s decarbonisation efforts through trade and encourage cleaner practices. Although the scheme will not come into effect until 2026, the CBAM incorporates a transitionary period from 2023 to 2026 where EU importers of cement, iron, steel, aluminium, fertilisers, electricity and hydrogen (CBAM Goods), will have to report on the volume of their imports and greenhouse gas emissions embedded during their production. Notably, this transitionary period will not involve any financial adjustment at this stage. Once we tick over to 2026, EU importers of CBAM Goods will need to buy and surrender certificates which directly correspond to emissions embedded in the CBAM Goods.

The EU’s introduction of this ‘carbon tax’ has the potential to drive renewable investment within Australia. Assuming Australian manufactures are able to decarbonise their operations and the Australian exporters emissions data is deemed to be valid under the CBAM, Australia’s profitability for exporting CBAM Goods could be significantly increased in comparison to competitors. However, if the EU authorities refuse to accept the emissions data from Australian exporters as valid due to a lack of compatibility with EU accepted measures, as well as the cost of carbon reduction, significant compliance costs could be felt by Australian manufacturers.

What’s on the horizon?

Australia is on track to become a global leader in renewable energy. Below we have set out our predictions for 2024 and beyond:

Reform rollout:
  • Opportunity: a key feature of the last 12 months has been the Federal Government’s increased involvement and investment in the renewable industry. We foresee an increase in private investment from companies and institutions which will drive innovation and project implementation.
  • Risk: to date, Governments of all levels have focused on attracting investment. The interest is clearly there so its now time to focus on implementation. Streamlining the approvals process, fast tracking grid applications and developing a landholder engagement framework are essential, otherwise all the momentum gained in recent years will be lost.
Solar continuing to lead the charge and batteries closely linked:
  • Opportunity: we expect the price of solar power to become increasingly competitive which will drive growth in solar installations across residential, commercial and utility-scale projects. Energy storage solutions will grow alongside this as Australia looks to enhance grid stability and store excess renewable energy. One key trend we have been supporting clients with is the retrofitting of batteries to existing PV solar farms, which can increase the profitability of these projects.
  • Risk: the development of renewable energy generation without storage will increase the impact of capacity shortfalls and intermittency risk as our grid transitions away from carbon based generation. There will remain a need to rely on coal and gas generation, and without direct investment into storage options, when these traditional generators shut down, the price gains for consumers offered by renewables will quickly diminish.
Offshore wind to take off and hydrogen to advance:
  • Opportunity: with Victoria recently introducing legislation to support offshore wind, we expect to see an ongoing interest in these projects. There has also been a hydrogen regulatory review consultation paper published by the Queensland Government which considers the next steps for Queensland’s hydrogen regulatory framework. Although this report is in the early stages, the aim of this framework is to bring the focus to the opportunities presented by hydrogen and we expect to see hydrogen getting more and more attention as we progress closer towards our prescribed renewable energy targets.
  • Risk: despite these positive advancements, large scale hydrogen and offshore wind production remains prohibitively costly. Due to the uncertainty around development costs, it is difficult to see how these projects can be quickly advanced. Tangible government support in these areas, such as that recently seen with ARENA’s investment into the majority indigenous owned Kimberly hydrogen project, by way of tax credits and similar schemes to the CIS would go a long way to supporting these emerging sectors in Australia.

Australia will continue to face challenges which may threaten the seamless and successful rollout of renewable projects, including issues with grid integration, transmission infrastructure, managing intermittency, obtaining planning approval and landholder support.

Collaboration between industry, government, and communities will be essential to overcoming these challenges and as a result, achieving the ambitiously set renewable energy targets.

This is an article from our 2024 Edition of Emerging Issues for the Australian Energy and Resources Industry. To read more from this publication, click here.