CEIG Blog

Clean Energy Investment Confidence Survey shows a new federal government must have a strong energy reform agenda

CEIG has released its latest Clean Energy Investment Confidence Survey which finds that investor confidence is unchanged this quarter. Following the federal election on 21 May 2022, the new government will have to do a lot of work to focus and accelerate reform in the National Electricity Market (NEM).

This is the second quarter that Investor Confidence has been unchanged. This is a significant finding for the incoming federal government because last year CEIG published research which found that uncertainty and barriers in the electricity market contribute to an increase in the cost of equity for clean energy investment by 100-250 basis points. The new government will have to set an energy reform agenda to reduce this cost, primarily through improvements to policy and regulatory frameworks.

Investors reported that the cost of equity risk premium was unchanged over Q3 FY 2021-22. They also reported some mixed signals about the direction of reform but that overall, it has stayed the same, which is very concerning.

CEIG launched this quarterly, qualitative confidence survey at the start of FY 2021-22 to generate credible in-house research about investor views of the clean energy transition.

 

Risks remain

According to the investors surveyed there were mixed signals about emissions policy, NEM scenario planning and the transmission framework. Overall, there was no change in the key five risks faced by clean energy investment in the NEM. These are

  • Complex and lengthy transmission planning and connection processes
  • Potential introduction of locational marginal pricing
  • Lack of marginal loss factor reform
  • Emissions policy uncertainty
  • Unrealistic NEM scenario planning and timetable for coal closure

 

 

Headline developments

There were big global and national headline stories over the quarter.

The Confidence Survey found that the most important headline for investors was not the Ukraine War or the Federal Budget, but the announcements from Origin Energy and AGL bringing forward the closure dates for coal power stations in NSW and Victoria. Investors found this development is mostly positive for clean energy investment but also carries some risks.

The Russian war against Ukraine was seen as the second most important headline for clean energy. Investors were underwhelmed by the federal budget and reported that it will have little or no impact on the clean energy investment environment.

The most positive development over the quarter was the Mike Cannon-Brookes and Brookfield bid for AGL. Investors were also positive about the NSW government’s decision to accelerate the Electricity Infrastructure Roadmap in response to the coal closure announcements and also the 40 GW response to the Hunter Renewable Energy Zone Registration of Interest (REZ ROI) and 34 GW worth of proposals to the South West REZ ROI.