The intense competition for financial capital for climate and renewable energy projects has taken a significant turn since the election of Donald Trump, with tens of billions of investor dollars potentially up for grabs.
Australia has been locked in a race against the US and other markets for renewable energy investment, particularly after former president Joe Biden introduced climate-driven legislation, including the Inflation Reduction Act (IRA).
These sparked a domestic scramble to introduce policy – such as the Future Made in Australia legislation – to lure investment to Australian projects.
Now that the IRA and other signature Biden reforms face being pared back, local investors hope some of the money previously destined for US renewables projects will be redirected to Australia. They are also confident Australian industry will not turn away from climate targets and action, as some major banks have in the US.
The chief executive of the Clean Energy Investor Group, Richie Merzian, says there are “billions of dollars” on the line for the renewables industry.
“It’s a major opportunity,” Merzian says. “The IRA, which was Biden’s flagship climate legislation, was like a vacuum cleaner sucking up global investment into the US’s ambitious plans – with President Trump’s executive orders, that all seems at risk.”
Duncan Paterson, director of investor practice at the Investor Group on Climate Change, which represents Australian and New Zealand investors concerned with the financial effects of the climate crisis, agrees.
“Most global investors are sticking to their climate targets because they understand the science hasn’t changed, so if the US pulls back on renewable energy, Australia looks like a better option,” Paterson says.
The Australian Energy Market Operator (Aemo) estimates that, based on existing technologies, $122bn will be needed to achieve Australia’s critical target of net zero by 2050.
But experts warn that any money redirected from the US will not flood in immediately. Trump’s executive orders have created confusion in the US but could be challenged by Congress and in the courts.
Tennant Reed, climate change and energy director at the Australian Industry Group, says part of the IRA that provides tax incentives is safe at this stage, meaning investors will not necessarily pull their money from major US projects yet.
But either way, he says, the orders create uncertainty and instability for investors in the US.
“To the extent that the US is a less welcoming destination for investment, to the extent there’s unpredictability, and a withdrawal of funds, then Australia could compete for that investment,” he says.
Will van de Pol, the CEO of the climate advocacy group Market Forces, agrees on the need for political stability to ensure Australia remains attractive to investors, and “make the most of the significant economic opportunity”.
“What is critical is that there are no wild swings in policies that encourage renewable investment in this country,” he says.
Van de Pol suggests offshore wind presents particular opportunities for attracting investment in Australia.
“Trump has made very clear he will not be supporting [wind projects], so offshore wind developers should be looking here for attractive opportunities.”
Several investor bodies says there are still gaps in domestic policy settings that do not send the “right signal” to attract overseas capital, and time is running out to adjust them. Some say policies such as the capacity investment scheme and renewable energy zones are good signals but do not go far enough.
Merzian, in a report released by CEIG on Thursday, says the national electricity market (Nem) needs an overhaul to better attract investment.
The report says the Nem has stalled investment in renewables because its framework was designed for a market consisting largely of fossil fuels, which use a completely different financial model.
“The national electricity market was designed in an era of flip-phones and Nokia,” Merzian says.
“A rethink is essential to attract sufficient investment, lower the cost of capital for renewables and build Australia’s modern clean energy grid.”
The report says there is already a shortfall in the amount of investment needed for renewables projects and, under the current investment trajectory on Aemo’s plan, the country faces a gap of between 12GW and 18GW of renewable energy by 2040. One gigawatt is equal to the power generated from more than 3m solar panels.
With projects around the world wrestling for any spare capital from the US, Van de Pol warns Australia needs to improve its policy settings.
“There is a significant opportunity for energy investments across Europe which has been incentivised with policy settings coming out of Brussels,” he says.
“Countries like Brazil have moved to set themselves up … there are a number of horses in the race.”
In response to questions on Trump’s executive orders, Anthony Albanese told the National Press Club last week Australia had a “first mover advantage”.
“We’ll wait and see what the implications are for where capital flows,” he said.
“[The IRA] has resulted in a flow of capital being focused on the United States because of the advantages that they have. Now we have engaged in investment and attempts to attract capital here … We’re working on steel, batteries – all of these issues are ones in which Australia has potential opportunity.”
