Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 180

Lack of policy direction hurting renewables

Government dithering at the state and federal levels is hurting the renewable energy sector, with the net result being greater investment uncertainty, according to a panel at the Asia Pacific Impact Investment Summit held in Sydney last week.

The panel, which was chaired by Ian Learmonth from Social Ventures Australia, consisted of Carnegie Wave Energy (CWE) Managing Director Mike Ottaviano, NAB Director of Capital Financing Solutions David Jenkins and ClimateWorks Head of Implementation Services, Scott Ferraro.

Australia’s commitment under the Paris Accord agreed to at the end of 2015 is to keep emissions at 1.5 degrees above pre-industrial levels and to reduce current carbon emissions by 20% by 2020, with five-year reviews thereafter.

Australia’s Climate Change Authority, meanwhile, is calling for a reduction in carbon emissions in the range of 40-45% by 2030. Interestingly Samoa, one of those Pacific islands at the mercy of sea-level rises, has launched an initiative titled ‘1.5 to Stay Alive’.

Low renewable uptake

Ferraro said the emissions targets agreed to in Paris represented a “compelling need to mobilise global capital” and that ClimateWorks was engaged with state and federal governments to achieve the most tangible emissions benefits possible.

Australia’s renewable penetration rate is still extremely low, however, with wind and solar combined providing less than 15% of total electricity output. “Grand ambitions are not being matched by action. States have completely different targets to the federal government, which doesn’t even have a target beyond 2020. We need to have uniform policies, settings and guidelines before we can achieve anything meaningful.”

Some state governments aren’t waiting for Canberra to act. South Australia and Victoria have already set extremely ambitious zero net emissions targets by 2050, something which came under the microscope following the recent blackout in South Australia.

Debt capacity in the local market

Jenkins said NAB had witnessed a marked rise in demand for renewable energy investments and was encouraging more corporate and individual investors into solar and wind technology, adding that bank was now the leading debt financier of renewable energy in the country. He said the investment needed to achieve the 2020 carbon reduction target is about $8 billion and $2 billion a year thereafter, for which he said there is ample debt capacity in the Australian market.

The total cost bandied about for Australia’s total reductions commitment to 2050 is something around $50 billion, though the vagaries surrounding this number are considerable. Globally, the cost has been estimated at over $50 trillion.

Whether these figures are fact or fiction, it’s safe to assume that the final amounts will by necessity be gigantic, and that this money will flow to renewables through a combination of government and private spending on technology, building and modifying power networks and grid infrastructure, and modifications to commercial and residential properties through the use of technology such as solar panels.

Much of this investment will take the form of Green Bonds, of which governments, corporates and organisations such as insurance companies facing increased exposure to extreme weather events are likely to be the biggest supporters.

A long, slow wave to success

Carnegie Wave Energy is a good example of the difficulties faced by start-ups in the renewables sector. As a world leader in wave energy technology, and after 10 years in operation, CWE is still regarded as a minnow, with a share price hovering around the 4 cent mark and a market capitalisation of $80 million. Ottaviano said there is still a huge gap in the financing structure of the sector and the company’s travelled a long, hard road towards commercialisation. CWE would not have been viable at all without the $30 million in government funding it received through the ARENA programme and the enthusiasm of smaller investors.

“We were inadvertently one of the first to engage in equity crowd funding in 2006, not because we wanted to, but because we had no other options. Institutional investors and venture capitalists basically said to us, ‘come back in 10 years when you have a commercially viable product.’ We attracted a lot of small investors who weren’t going to bet the farm but had a genuine interest in us succeeding, and not just for financial gain. Ten years on, we’re finally beginning to attract interest from institutional investors.”

Ottaviano said the company had done much over the past decade to understand grid infrastructure and had recently branched out with the acquisition of local battery and solar engineering company Energy Made Clean, making CWE the only ASX-listed company with a dedicated renewable energy microgrid project delivery capability. The immediate beneficiaries of this technology will be remote communities that may not have ready access to an existing power network or grid.

He also said it was a tad ironic that those in the fossil fuel sector were criticising the subsidies offered to renewable start-ups at every opportunity. “We get admonished for supposedly sucking on the government teat, but that’s a bit rich coming from oil and gas companies, given that they were the beneficiaries of massive government subsidies for decades.”

Bad press and bad regulation

Regarding the fallout from SA’s grid disaster that left the entire state without power for several hours, much of which was blamed on the smallish wind component of the state’s power supply, Ottaviano said, “renewable energy technology is an extremely complex subject, especially when it relates to grid infrastructure. It’s easy to use renewables as a scapegoat when people have no idea what they’re talking about, but it’s virtually never the fault of the technology. South Australia’s renewable penetration is way below that of several states and countries internationally. In reality, the government failed to plan for the freakish storms that caused the blackout.”

There have also been some high-profile failures over the past decade that haven’t done much to enhance perceptions of the renewables sector. “Anyone who put their money into geothermal or hot rocks-related start-ups would have been extremely disappointed,” Ottaviano added.

Ferraro said certificates still prop up the sector to some extent, as do feed-in tariffs, though their effect is overstated. “We need a national price on carbon, pure and simple. This will remove any future uncertainty around what governments and businesses need to do now to fix this problem.”

Jenkins agreed that the uncertainty around emissions targets and the price of carbon is having a profoundly detrimental impact on the sector. “It’s frustrating, that’s for sure.”

Lack of will to invest

Ottaviano added that the industry is hampered by the lethal combination of a shallow venture capital market and capital-intensive technology. “Everyone’s looking for that next big market disruptor, but there’s a lack of will among decision-makers to invest. Sure there’s Uber and AirBnB that have had a big disruptive impact here but they’re not Australian companies.”

By way of example, Michael Glennon, the managing director of small-cap LIC Glennon Capital, said his fund had looked at adding renewables to its portfolio but he couldn’t find anything that met his investment criteria. “We need to see a clear path to stand-alone profitability before we take a position in a stock. Apart from that, I don’t know enough technically about the sector to make an informed judgement.”

The panel agreed it is particularly frustrating that in many parts of the world, solar and wind technology is now at least as cost-effective as fossil fuel-derived energy. In Chile, for example, renewable energy costs in the range of 3-4 cents per kilowatt hour, and they don’t even have a price on carbon.

Another major hurdle is Australia’s regulatory environment, which is often multi-layered and suffers from a total lack of co-ordination between state and federal governments, resulting in multiple networks across states with different energy mixes and the rules governing them.

Optimism abounds

When asked what excited them most about the future, Ottaviano said CWE’s looming trial at the Garden Island naval base off the coast of WA and the possibilities surrounding Energy Made Clean gave him much cause for hope.

Jenkins said the continuing decline in energy-generation costs in conjunction with the wave of capital expected to hit the sector was extremely encouraging, while Ferrero said he couldn’t wait for the federal policy review, slated for 2017, and the ratification of the Paris Accord in Morocco in a couple of months.

On a final note, despite the wealth of information on offer and the undoubted passion of the protagonists, I found it somewhat disconcerting that at a regional impact investment summit, where ideas are exchanged that supposedly lead to investment and outcomes that benefit the planet and its citizens, there were only about 30 attendees at this discussion, many of whom were from the speakers’ respective organisations.


Alan Hartstein is Deputy Editor of Cuffelinks and attended the event as a guest of the Impact Investment Summit.



Leave a Comment:



Three key trends and the power of investing in decarbonisation

The green lining of COVID-19: a time for change

Invest more in mining to deal with climate change


Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates


$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.


Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated' investors can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.