Chart of the Month - January 2024

Australia’s renewable energy consumption grew by an average annual rate of 5.7% in the decade to 2021-22. In contrast, oil (-0.4%) and coal (-2.6%) consumption declined. Solar was the fastest growing renewable category at 29.8% followed by wind at 15.4%. Like many countries, Australia has seen an increase in renewable energy investment and generation. However, unlike many countries, Australia’s potential for renewable energy is enormous, as we will see below. 

The increase in Australia’s renewable electricity

Australia is no stranger to renewable energy: in the 1960s renewable energy reached over 25% of total electricity generated when the Snowy Hydro scheme came online. However, after that coal reestablished itself and renewables faded (see the chart below).

But starting in the 2010s, cheaper and more efficient solar panels began to increase the percentage of renewable energy and it now stands at 32% of total electricity generated. The Albanese government has set a target of 82% by 2030.

Most of the increase in renewable energy has come from rooftop solar installations. Solar has been rocking the suburbs! In 2022 it accounted for around 25% of all renewable electricity and 8% of all electricity generated (see chart below). But growth has slowed recently as rooftop solar nears saturation point: nearly 1 in 3 Australian homes now have solar with 2.5 solar panels for every Australian.

Thankfully, large-scale solar, also called grid solar, has also been making big strides since 2015 and now generates 5% of Australia’s electricity. It will soon overtake rooftop solar. Its growth has been spurred by lower prices for photovoltaic cells and a series of government incentives, including the Renewable Energy Target and the new Capacity Investment Scheme. Progress has also been enabled by the National Electricity Market (NEM), established in 1998, the 5,000km-long network links the state electricity grids of the east coast (including the island of Tasmania)  and the state of South Australia.

The government has also invested in a large pump-hydro system to augment the Snowy Mountains hydro scheme. The plan is to use solar energy to pump water from a lower to a higher dam during the day and then to let the water flow back down through the turbines during the night. It sounds brilliant on paper, however, after spending AUD 13 billion (11 billion more than the original estimate), “Snowy Hydro 2.0” will not be finished until 2028. It didn’t help that a key boring machine “Florence” got stuck in unexpectedly soft rock for over a year from 2022 to 2023!  

The big windfall

Given its recent growth and Australia’s sun-drenched interior, the potential of solar power in Australia would seem enormous, and it is, but wind power may just blow it away.

Wind power is already the largest source of renewable electricity at 12.8% and that is set to continue in the future when we look at the investment pipeline for Australian renewable energy (see chart below).

Across its 60,000km coastline, Australia has many quality high-wind locations, comparable and in some cases better than the North Sea. Unlike large -scale solar, many of these locations are close to the main population centres. For example, sites in Bass Strait with wind speeds of 12 metres per second are not too far from Melbourne. Further, unlike solar, electricity is still generated in overcast conditions and at night.

A study by the Blue Economy Cooperative Research Centre found that potential new offshore wind farm locations, all within 100kms of existing electricity substations and transmission lines, and in depths of less than 1km could generate 2,233 GW of additional electricity. This is more than double Australia’s current installed electricity capacity. Between wind and solar, Australia is spoilt for choice.

What does this mean for Private Debt in Australia?

As interest and investment in Australian renewable energy increases, the local private debt market will have a part to play in helping large-scale renewable energy projects and the service companies that support them.