Energy Transition And The Role Of The Infrastructure Sector
- Oct 3, 2022 4:49 pm GMT
Meeting the challenges of transitioning
So, what role can the infrastructure sector play?
There are many answers to this question and the infrastructure sector has already played a significant role in the development and funding of many of
- Funding, financing and delivering the necessary transmission infrastructure to support the efficient rollout of renewable energy projects.
- Delivering more renewable energy projects.
- Partnering with industry to develop solutions to difficult issues that need to be solved to ensure supply of energy is low-cost and available when required.
A critical component of
Less obvious is the role of behind-the-meter connection infrastructure.
Delivering renewable energy projects
There are over 200 wind and solar generation assets currently operating in the National Electricity Market (NEM). Given capacity factors, these projects deliver less than a quarter of
What is staggering is the number of additional projects required to meet emissions reduction targets. The infrastructure sector doesn't need to be convinced to invest in conventional renewable energy projects like wind and solar, however, the most successful will:
- Organise capital to deliver multiple projects. Over the past few years, we have seen a consistent trend of capital aligning with project pipelines. Given the significant shift in Federal Government policy on climate change and state-based policies, the question is no longer 'if' it is 'when' and 'how fast' renewable energy projects will become
Australia'smain electricity source.
- Develop innovative and bankable offtake structures and manage commodity risk on a portfolio basis. Once the domain of pure energy companies, we are seeing more and more infrastructure investors develop sophisticated offtake and trading strategies.
- Manage construction risk and adapt to different contractual models. For a long time, fully wrapped Engineering, Procurement and Construction contracts dominated Australian renewable developments. While highly desirable, these contractual models are changing and split procurement is becoming more common.
Partnering with industry to develop solutions to difficult issues
While the steps taken to develop REZs and further roll out of wind and solar projects are all positive and necessary steps, the most difficult challenges centre on reliability and working out ways to replace high emission generation assets in a cost-efficient way. In our view, the infrastructure sector can play the following roles:
- Having a voice on market design. We know many of you already do this. The recent response from government to the Energy Security Board's recommendations for 2025 continue to demonstrate political interest in an issue which, at its core, is a technical and engineering one. We encourage the infrastructure sector to continue to bring its perspectives.
- Finding opportunities to support new technology. In the short term, we see this as supporting the development and roll out of battery and pumped hydro. Following that, offshore wind and hydrogen present new opportunities. The infrastructure sector has a long track record of identifying and developing assets which have infrastructure features, such as digital infrastructure and registries.
- Working with industry to accelerate decarbonisation strategies. We are already seeing this in lower carbon mid-stream
Liquified Natural Gas. The benefits we see the infrastructure sector bringing to industry are two-fold. First, it allows capital to be unlocked to further develop assets. Second, the investment rigour and ESG mandate requirements of infrastructure investors assist in the validation of those projects.
- Providing infrastructure solutions to decommissioning issues. One issue that stands out is water supply for coal mine decommissioning. This has been a critical issue in the
Latrobe Valleyand there is a potential role for the infrastructure sector to play in delivering alternative water supply options for a number of projects in the area.
The infrastructure sector has, and will continue to have, a critical role in meeting the challenges of
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