Three considerations for renewable energy projects

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As we progressively move towards a more sustainable future, the Federal Government has made substantial investment into supporting the renewable energy sector. In this article we take a look at three key considerations for developers, owners, asset managers, energy retailers and investors to ensure effective integration and outputs of new projects. 

1. Impacts on existing renewable energy projects and grid integration

As renewable energy capacity expands, curtailment and grid access challenges may emerge. Curtailment refers to the reduction or shutdown of renewable energy generation due to grid congestion or imbalances between supply and demand. To avoid economic losses and wasted potential, proactive measures should be taken to enhance grid flexibility, integrate energy storage technologies, and establish mechanisms for efficient load management.

Close coordination between government agencies, energy regulators, and industry stakeholders is crucial. Comprehensive impact assessments should be conducted to identify potential areas of conflict and determine appropriate grid upgrades. Moreover, upgrades must be prioritised to enable efficient transmission and distribution of renewable energy across the country.
Additionally, ensuring equitable grid access for all renewable energy generators, including small-scale and community-owned projects, is essential. Streamlined regulatory processes, transparent market mechanisms, and fair grid access policies must be in place to foster a diverse and inclusive renewable energy sector.

2. Impairment models, debt funding, and covenant breaches

As Australia accelerates its renewable energy ambitions, issues related to impairment models, debt funding, and covenant breaches may arise. Impairment models play a critical role in assessing the financial viability of renewable energy projects. With the introduction of new projects, the potential exists for older projects to experience decreased capacity factors, impacting their financial performance. It is crucial that robust impairment models are employed to accurately evaluate the assets and ensure sustainable investment decisions.

Debt funding is another vital aspect of the renewable energy transition. The government must work in collaboration with financial institutions to develop innovative funding mechanisms that support the growth of renewable energy while managing associated risks effectively. Careful consideration of project economics, cash flows, and debt service coverage ratios is necessary to prevent covenant breaches that could have adverse effects on project financing and investor confidence.

3. Energy retail market outlook

Energy retailers active in, or looking to enter the renewable energy market, play a crucial role in the renewable energy transition and are faced with their own set of challenges. The changing energy landscape and increasing energy costs have seen energy retailers adapt their business models by adopting more flexible strategies to support customers. This requires developing sophisticated forecasting and balancing mechanisms to match supply with demand accurately. 

Energy retailers must also navigate complex regulatory frameworks and market structures to procure renewable energy at competitive prices. They also face the task of educating and engaging consumers to embrace renewable energy options, promoting energy efficiency, and facilitating the transition to smart grid technologies.

Through procuring renewable energy, via mechanisms such as power purchase agreements (PPAs), virtual power purchase agreements (VPPAs), and direct investment in renewable projects, retailers are able to diversify their energy portfolio and provide customers with cleaner energy options. 

Australia's commitment to renewable energy transition is a transformative opportunity

Careful planning, coordination, and investment in infrastructure is crucial to successfully integrate new projects and maximise their output. Addressing challenges related to impairment models, debt funding, covenant breaches, curtailment, and grid access will be key to realising Australia's vision of a sustainable future powered by renewable energy. 

From a retail perspective, while data from the June 2023 Australian Energy Retailer performance report outlined positive developments such as price reductions and bill relief initiatives, challenges related to debt, complaints, and disconnections have persisted. In response, Government and retailers should collaborate to support the ongoing effectiveness of government support initiatives, addressing the rising number of consumer complaints, and ensuring the retail energy market’s ongoing focus on affordability and sustainability.

If your renewable energy project or investment is facing these same issues, or you are looking to invest in or develop a new project and want to understand your risk exposure and / or market opportunities, or you need support with offset procurement agreements, please get in touch. We are supporting renewable energy clients nationally in navigating these challenges and leveraging the opportunities available.

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