Are renewables “falling off a cliff”?

Ahead of his National Press Club speech in Canberra today, Opposition Leader Anthony Albanese breathlessly tweeted that “renewable energy investment has fallen off a cliff“. But has it?

Yesterday the NSW Government is reported to have received a ninefold oversubscription for expressions of interest in its first Renewable Energy Zone at Dubbo in the state’s central-west. Expressions of interest closed earlier this month with 27,000mw worth of projects for the 3,000MW zone. While there is a big gap between EOIs and wheels on the ground, that doesn’t feel so much like a cliff as a rocket ship.

The most recent March 2020 Quarterly Carbon Market Report released by the Clean Energy Regulator (CER) remains bullish about renewables investment. That’s despite growing financial headwinds for renewables investors including declining subsidies from the Renewable Energy Target scheme and declining wholesale electricity prices. In short they’re getting paid less, but that doesn’t seem to stop investors.

Source: CER

The CER data is mostly reporting on activity ahead of the COVID-19 pandemic. The first quarter of 2020 saw another 800MW of new renewables capacity committed, which would be roughly on point to deliver 2000MW of new renewables for the full year. This is the amount needed each year to complete the build-out of a renewables-based grid by 2050.

Mr Albanese may be referring to the easing of investment from the world record 2019 year which saw 6.3 GW of new large and small scale renewables installed in a single year. It’s a feat that is unlikely to be repeated any time soon.

The CER also hinted at continued strength for renewables even during the COVID-19 pandemic, suggesting 2000 to 3000MW of new capacity is likely for 2020.

The deeper question is where this demand is coming from. The CER thinks it is being largely driven by businesses contracting renewables into their electricity supply to reduce Scope 2 emissions and their own carbon risk.

Even in the absence of a carbon price or other similar constraint, many listed businesses are under growing shareholder, investor and board pressure to demonstrate prudent management of climate risk. The Australian Prudential Regulation Authority recently signalled it would be stepping up its review of climate risks for regulated institutions. Contracting renewables remains relatively accessible, cost effective and high profile way of meeting these requirements.

The problem with this approach is that it is ignoring the escalating price signals in National Electricity Market to slow renewable investment. Not only is the value of Large-scale Generation Certificates (LGC) continuing to fall as expected now the RET has been delivered, but the value of renewable generation in the NEM is reducing as more wind and solar generate at the same time.

This continued renewables investment in spite of price signals from the market will only increase wholesale market volatility and everything that goes with it: reduced emissions, accelerated closure of some firm generators and reduced financial performance for some existing renewable generators. There is still little sign of these conditions improving the business case for storage at scale to re-balance these signals.