The new policy backdrop in Australia and the resilience of its infrastructure to macroeconomic factors all present an attractive entry opportunity for Asian investors seeking fresh sources of stable long-term yield, according to a Queensland Investment Corporation (QIC) report.
In “A Changing World: The thematics influencing infrastructure investment in Australia”, the nation is well positioned to benefit from key long-term trends that are shaping infrastructure investment globally.
The current state of trade and energy are incompatible with global sustainability and the safety of supply chains, and as a result, three crucial long-term investment themes are emerging to help nations make the transition to the new investment landscape: decarbonisation, decentralisation, and deglobalisation.
“Australia represents an interesting risk return play on Asian growth and some of those big thematics,” Ross Israel, head of global Infrastructure at Queensland Investment Corporation (QIC), told AsianInvestor.
These secular trends associated with global decarbonisation, decentralisation, deglobalisation, and the changing demographics of an ageing population are particularly pronounced in Australia — given some of its distinct characteristics relative to the rest of the world. This underpins the country’s attractiveness as an infrastructure investment destination over the next decade, said Israel.
The Australian federal elections in May resulted in new political momentum to make Australia a “renewable superpower”, with a commitment to targeting net zero emissions by 2050 and the introduction of the Labour Prime Minister’s “Powering Australia Plan”, which is expected to achieve a 43% reduction in greenhouse gases from 2005 levels by 2030.
“Our electricity market is actively dealing with this transition to include renewables, energy storage, and micro grids, integrating them into the backbone infrastructure in distribution and transmission networks,” said Israel.
“This backdrop creates a favourable environment for investment in Australian energy infrastructure, one that has not been seen in many years,” he added.
According to the QIC report, the drive to net zero emissions in Australia will require systematic change, with renewable penetration needing to grow to 82% of total electricity generation by 2030 versus 68% under its previous plans. It will also require unprecedented investment totaling $52 billion (A$76 billion), of which $34 billion is expected to be private investment.
“We are fortunate with our climate to have a very significant renewable resource in terms of solar and wind. We also have available land which is inspiring quite strong support for development of a green hydrogen export industry,” he said.
With the world hunting for a solution in the transition from dirty to clean energy, hydrogen is increasingly being looked to as an enabler of the deep decarbonisation needed to meet long-term objectives. With its plentiful resources, economic capacity, and established trade connectivity, Australia is very well positioned to become a leader in the Indo-Pacific for the export of “green” hydrogen, said Israel.
“The context of where Australia sits in Asia, particularly represents an opportunity for us to transition away from certain carbon-heavy industries such as thermal coal, to a more renewable and sustainable set of industries, leveraging our endowment of key commodities for the energy transition including cobalt, lithium, and copper,” he said.
“Through green hydrogen, and some of the long transmission projects to deliver renewable power into Southeast Asia, we are positioned to become a primary exporter of renewable energy to parts of Asia, thereby playing an important part in the global energy transition.”
The upcoming period of intensive investment in hydrogen-related infrastructure presents a strong opportunity for institutional investors seeking real assets with long term contracted cash flows. Up to $3 trillion of infrastructure investment may be needed by 2030 (and up to $20 trillion by 2050) to develop the “Hydrogen Economy”, according to QIC’s report.
LESS RISKY BUSINESS
Australia’s attractiveness as an investment destination is further outlined by its resilience and growth during Covid-19. The country’s growth rate remains strong at 4.2% this year, according to the International Monetary Fund.
Australian GDP is projected to be 6.7% larger by the end of 2022, compared to pre-pandemic 2019. This increase over the pre-Covid-19 level is higher than the average 3.7 % for advanced economies.
As global supply chains repair and geopolitical risks rise, Australia has become an even more attractive partner for trade, and also provides a viable entry point to the rapidly expanding Southeast Asian economy as supply networks are diversified and resecured.
“In the current market, Australia presents an interesting proposition that investors only focused on the big markets may not have necessarily registered as much interest in, during the last three or four years, as they may in the next three to five years,” said Israel.
For investors putting together an infrastructure portfolio with a natural desire for a spread of risk return, Australia provides a really good hedge in Asia for a number of reasons, according to Israel.
“From a stable business environment perspective and regulatory environment, Australia is well positioned with its rule of law and regulatory boundaries in infrastructure as an attractive destination for capital,” he said.
“In a sense, Australia gives you the Asian growth and connectivity without necessarily taking some of the deep emerging market risk, and the currency risk that comes with some of those markets.”