Super funds to capitalise on Australia’s renewables ambition

The policy committment in Australia to develop the country’s renewable energy infrastructure  presents an attractive opportunity for institutional investors and asset owners, experts said.

The Australian Government committed more than A$40 billion ($26.5 billion) to making the country a renewable energy superpower, via proposals in the 2023-24 federal budget on May 9.

The budget includes a proposal to invest a further A$4 billion in a renewable energy superpower plan and A$2 billion in a new Hydrogen Headstart program, helping Australia to lead the world in producing and exporting hydrogen power.

Ross Israel,
QIC

“The Government’s budget commitments in renewable energy and hydrogen are further encouragement for investors and underpin the continuing growth in clean energy investment opportunities in Australia,” Ross Israel, head of global infrastructure at the Queensland Investment Corporation (QIC), the investment arm of the Queensland state government, told AsianInvestor.

QIC also invests on behalf of other large institutional investors.

The iniatives will be welcomed by super funds, who have been found to have significantly boosted their investments in renewable energy infrastructure over the past ten years, according to recent research from Association of Superannuation Funds of Australia (ASFA).

Direct super fund investments now account for about 5% of the country’s overall renewable energy capacity and 10 per cent if indirect holdings are included, according to data from ASFA.

Rest Super, which wholly owns the Collgar Wind Farm in Western Australia, as well as Aware Super, Cbus, and Future Super are among the industry super funds that have made significant direct investments in renewable energy.

Meanwhile HESTA, Hostplus, and Brighter Super have made indirect investments in various solar and wind energy projects.

Overall, super funds have increased their investments in infrastructure from about A$30 billion in 2010 to A$165 billion in 2022.

QIC, which manages over A$40 billion in funds for over 30 government investors has been an active investor in energy transition as well for some time, and continues to be attracted to this significant thematic, said Israel.

“Our investments supporting the transition to a low-carbon economy have now grown to A$5 billion, and we aim to invest more than A$15 billion into energy transition opportunities over the next five years,” he said.

Through its portfolio companies — such as Tilt Renewables (2016), Pacific Energy (2019), and Vector Metering (2023) — QIC believes it is well-positioned to capitalise on the growing opportunities.

HOMEWARD BOUND

In recent years, there has been interest from Australian super funds and asset owners in renewable energy projects, but there haven’t been all that many investment opportunities domestically, according to Tim Unger, head of sustainable investments, Australia at WTW Investments.

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“Until recently, there was a lack of certainty about the domestic regulatory and policy environment and what the longer-term commitment of the government was to facilitating the transition to renewable energy,” Unger told AsianInvestor.

Tim Unger,
WTW

As a result, Australian and foreign asset owners were more likely to find attractive renewable energy investment opportunities in offshore jurisdictions, particularly in Europe, rather than in Australia.

“Where there were investment opportunities in Australia, there was a lot of institutional capital chasing them, with the result that expected returns had been reduced to levels that were no longer very attractive, which reinforced the view that there were better investment opportunities offshore,” said Unger.

Following the recent budget announcements, Unger feels there is now much greater clarity around the Australian government’s stated level of ambition on climate policy, and it is expected that they will be playing an active role in facilitating the energy transition in order to meet their emissions reductions targets.

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A number of the proposals in the budget are clearly intended to crowd in private sector investment, by creating opportunities and incentives that make it more attractive for Australian asset owners to commit capital to projects that provide attractive returns and which facilitate the transition to greater use of renewable energy,” he said.

A LONG WAY TO GO

The government’s goal of Australia becoming a renewable energy superpower is still a long way from being a reality, but it is much more possible now than it was a few years ago, according to Unger.

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“The Labour government has made it clear that climate policy is a key focus that they intend to make progress on, in order to reduce the longer risks to Australia and to position us to take advantage of the opportunities that the transition will present,” he said.

“In that regard, I think that the budget was a positive step in the right direction, but I think everyone realises there is still a lot to do in a short period of time in order to achieve the goals of the Paris Agreement.”