As major economies agree on a deadline for decarbonization, investors are watching Canberra for a signal of commitment, write Lane Crockett and Fergus Pitt.

Investors in clean energy will have been encouraged by commitments made this month by leaders of the world’s seven largest economies. Even Australian investors. At the G7 summit in June, the United States, Canada, France, Germany, Italy, Japan and the United Kingdom pledged to achieve “a massively carbon-free electricity system in the 2030s” . As soon as possible, they said, they would phase out support for international carbon-intensive fossil fuels.

Australia is not a member but was represented by Prime Minister Scott Morrison, invited as a guest and looking – in our opinion – increasingly offbeat.

As EcoGeneration readers will know, Australia has not set any meaningful medium-term decarbonization target and refuses to boost decarbonization in the way envisioned by this G7 announcement by these seven powerful economies.

How, then, should the Australian clean energy industry interpret federal and state government policies and their effects on the market?

Starting with the national level, it is important to note that the federal government does not have a coordinated emissions policy. Rather, he continued to make unnecessary interventions, such as the decision to fund $ 600 million for a gas plant in Kurri Kurri, NSW, against the logic of AEMO forecasts and Energy Security Council statements.

If this government’s economic and environmental neglect continues, Australians will end up with a carbon-intensive economy, just as the world values ​​decarbonization. Australians can expect stranded assets, trade tariffs, lower foreign investment and perhaps even punitive treatment from our most valuable trading partners.

And while our federal government doesn’t seem to see the value of clean energy assets, international investors do. It was international investors who recently pledged to pay $ 1.75 million per megawatt for New Energy Solar’s Beryl and Manildra solar farms. This investment is consistent with recent activity: the majority of recent solar and wind farms were built under international the possession.

It is also worth understanding how other governments are planning to approach the energy transition. State governments have stepped in to set science goals to decarbonize their parts of the energy system. And while the ambitions and direction are appropriate, especially to support the increase in the electricity grid, the policy of supporting investments in the new generation is flawed. Supporting large volumes of new investments in power generation using contracts for difference and reverse auctions will distort the market, as Kerry Schott, Chairman of the Energy Security Council, said.

Meanwhile, government agencies, such as the Clean Energy Finance Corporation, continue to play an important role in supporting the energy transition, but are targeting more Australian transmission infrastructure, pumped storage facilities and expansion to the agriculture and transport sectors. These are all crucial elements of the energy transition, but CEFC support appears to be moving away from direct funding of renewable energy generators like solar and wind farms.

And to all this political uncertainty are added the main regulatory changes being considered, as in the post-2025 market design work underway by the Office of Energy Security.

So, with all of these mixed signals, there are a few ways to solve this puzzle.

The optimistic outlook indicates that – consistent with the relative confidence of international investors – Australia’s recalcitrant issuance parameters will evolve towards international consensus; clean energy production will be more valuable as penalties hit carbon-intensive factories. In this version, management certainty is likely to attract Australian institutional capital, which can help fund the next-gen gigawatts that Australia needs.

The less optimistic prospect is that we will have to continue to wait for a coordinated and rational policy. In this case, the transition to a clean energy system will continue, but it will be uneven and inefficient. Profitable investment opportunities exist and will continue, but a lack of political and economic predictability is likely to discourage large commitments from Australian institutional investors. The transition will be done in pieces; investments in stocks by the tens of millions, not tens of Billions. There will be financial winners, but the overall transition will be more costly, borne by consumers.

At the moment, it looks like the second scenario is more likely. Investors like us will always be able to find opportunities; there is clearly a need for nimble financiers who understand the clean energy system and want to help catalyze new projects. But as we’ve known since the fall of the Berlin Wall, things can change quickly when the conditions are right. We don’t want to predict what will be the last factor that forces Australia to align itself more with the major economies. But whatever happens, Australia must switch to clean energy as soon as possible, for the well-being of all.

Lane Crockett (far left) and Fergus Pitt are executives of Impact Investment Group.

Impact Investment Group has, along with its community of co-investors, financed and managed the construction and operation of six solar farms and one wind farm, all in Australia. It has just announced a new line of business offering short-term loans to catalyze new clean energy projects.