AUSTRALIA Trends and Developments Contributed by: Alexander Danne, Roy Groom, Rohit Venkat and Georgia Summerhill, Clayton Utz
billion in new investments in 2024 (the highest year on record), yet many projects continue to struggle to reach financial close. The core financing challenge facing renewable energy projects in Australia is merchant risk. As the market transitions to higher levels of renewable penetration, wholesale electricity prices are becoming increasingly volatile and, in many instances, are being driven down during periods of high renewable output. This price cannibalisation effect makes it difficult for projects to demonstrate the stable, predictable revenue streams that lenders require. The Clean Energy Investor Group has warned that the NEM’s outdated market design, built around an era of coal and gas power, is stifling investment in large-scale renewable generation, and that if investments fall short of the Integrated System Plan’s projected requirements by 6–9%, there will be a capacity shortfall of between 12–18 gigawatts by 2040. Government underwriting has therefore become essential to bridge this financing gap. The CIS directly addresses this challenge by providing revenue floor protection to successful bidders, covering 90% of any shortfall below an agreed floor price, thereby absorb- ing downside risk and making projects bankable for institutional investors. Winning a CIS tender gives a project a level of investment certainty that appeals to financiers and gives the project an advantage when securing financing. Without this government-backed revenue certainty, many projects simply cannot secure the debt financing required to proceed. Grid connection delays compound these financing challenges. Research commissioned by Intium found that 75% of surveyed Australian business leaders involved in renewable energy projects reported that their projects did not achieve grid connection on time. One in five said it took over 18 months longer than anticipated, and 70% indicated that the grid connec- tion approval process took 13 months or more, with some extending to two to three years. These delays erode investor confidence, disrupt commercial opera- tions and cause projects to miss financial close, with 69% of respondents indicating their projects missed financial close as a result.
The connection approvals process is complicated by the need to ensure grid stability as an increasing number of distributed and asynchronous renewable projects seek to connect to a grid originally designed for a smaller number of centralised baseload energy sources. While the Australian government’s AUD20 billion Rewiring the Nation investment in transmission projects is underway, these efforts will take time to be fully implemented, and the risk of project delays caused by the connection approvals process remains a concern. Environmental and planning approvals present an additional layer of complexity. The Climate Change Authority has noted that approval processes are limit- ing how quickly project proponents can connect new renewable generation to the grid, and that govern- ments can help by making approval processes more streamlined and transparent. The combination of lengthy environmental assessments under the EPBC Act, state-level planning requirements and community opposition, particularly to transmission infrastructure, creates a cumulative regulatory burden that extends development timelines well beyond what investors can reasonably accommodate in their financial mod- els. Taken together, these financing and approval chal- lenges underscore the market’s dependence on con- tinued government intervention. The CIS, the Clean Energy Finance Corporation’s concessional lending, and the Rewiring the Nation programme collectively provide the architecture needed to derisk projects sufficiently for private capital to flow. Without these mechanisms, Australia’s ambitious renewable energy targets risk becoming aspirational rather than achiev- able. The policy challenge is to ensure that these support mechanisms keep pace with the scale and urgency of the transition, and that approval frame- works are reformed to enable, rather than impede, the deployment of clean energy at the speed required.
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