Positioning energy investments for success in a rapidly evolving market
Australia’s electricity markets are undergoing one of the fastest transitions the world has ever seen. The volatility is driven by the following broad factors:
- The physical generation mix will fundamentally shift over the next 20 years, and market dynamics are changing as a result. The share of variable renewable energy that is needed to meet our net zero emissions reduction objectives will require an investment of around AUD66B in large-scale energy generation, storage and transmission capacity over the next 15 years under the market operator’s step change scenario.
- The needs of large electricity consumers are increasingly sophisticated as they seek to take greater control of their exposure to the energy markets.
- Newly implemented and draft regulatory and policy initiatives are introducing significant changes to the future market.
How can investors and energy portfolio managers assess their pipeline of generation and storage projects under uncertainty?
Renewable energy developers are gradually balancing the traditional infrastructure centric focus of their organisation with a greater customer and market orientation. Investors need a deep understanding of the competitive landscape, the drivers of buyers' decisions, and implications of offtake strategies.
At the same time as renewable electricity penetration increases, wind and solar generation need the support of fast response dispatchable energy solutions with value transferred from energy to capacity. Storage is needed across all depth classes, together with flexible demand. Market participants aim to position themselves as a beneficiary of the fast-transforming electricity supply landscape, seeking the right mix of variable renewable energy generation capacity and fast response firming capacity.
As market volatility continues, and is expected to last over the next decade, making market-based valuations of power generation and storage assets is increasingly challenging. Yet the long-term trend is clear. Renewable energy sources remain the lowest cost of new supply. Mature market participants are building or contracting with portfolios of renewable energy assets that can pursue more sophisticated revenue strategies that are better able to drive greater certainty of cash flows, tap a larger pool of market participants, and access a bigger range of risk management approaches.
Insights and advice
Energetics can help
We work with investors and renewable energy generators to develop clean energy portfolios that are better able to resonate with corporate offtakers' needs and achieve target returns. We provide deep market insights and robust quantitative risk analysis to demonstrate the impact of market dynamics and changes on energy portfolios, while defining hedging strategies to manage market and operational risks.