To a road trip enthusiast, the sight of towering power lines is a familiar one. The project of industrialisation and electrification, brought along the challenge of securely transmitting electricity across large distances. Each year
for the past five decades, a million kilometres of new electricity grids have been deployed worldwide.
From cables running underwater and underground to the power lines spread across vast terrain, these infrastructural legacies are at a critical juncture. An energy transition at scale would require grids to absorb and integrate new sources of power. Transforming these grids means upgrading them to suit the realities of renewable energy supply, while keeping them secure and reliable. A task that is capital intensive and vital.
A new investment by Australia’s Clean Energy Finance Corporation (CEFC) highlights the urgency of investing in grid infrastructure.
CEFC’s grid investment
The CEFC is a state-funded investment vehicle. It calls itself the country’s “green bank”. On 23 May 2024, it announced its largest single transaction
till date. A AU$490mn investment aimed at delivering new grid infrastructure to the Australian state of New South Wales.
The investment includes concessional debt extended to the NSW Energy Co, a utility
company. According to CEFC, the loan will finance land acquisition as well as the purchase of biodiversity credits.
“It will deliver a bigger, stronger, cleaner and more reliable energy grid fit for the 21st century. With an additional 4.5 GW in network capacity, it will also unlock new low cost solar and wind generation, backed up by battery storage”, said Ian Learmoth, CEFC’s chief executive.
Crowding in
The contextual backdrop of the investment is a call to financial arms issued by Australia’s energy market regulator, the AEMO. In a report published on 21 May, the AEMO stressed that as coal assets retire, reliability becomes a matter of concern for the next decade. Addressing these concerns requires
the urgent financing of new grid infrastructure.
Some Australian asset owners have viewed the grid opportunity favorably. In October 2023 Aware Super announced it would invest in Birdwood Energy – a distributed energy platform. The super fund was the sole institutional player on board.
“Distributed energy is difficult for institutional investors to access due to the multitude of small developers and companies”, said
Birdwood Energy founder and CEO Scott McGregor.
Other funds have also invested in grids in the past. In 2016, AustralianSuper and IFM Investors acquired
a 50.4% stake in a 99-year lease of AusGrid – one of the country’s largest grid operators. In 2021, AustralianSuper sold part of its stake to APG Asset Management which purchased the asset on behalf of ABP, the Dutch pension fund.
The challenge before CEFC then, is to pave the way for asset owners to access and invest in grid infrastructure.
The CEFC investment in NSW was made via the CEFC’s “Rewiring the Nation” (RTN) fund – a AU$19bn fund established in 2023, aimed at reducing the cost of funding grid transformations. By investing in the NSW’s central-west Orana Renewable Energy Zone (REZ), the fund is hoping to attract additional private investment both in the grid and beyond.
“Development of the REZ is forecast to bring as much as AU$10 billion in private investment to this exciting part of NSW by 2030, strengthening the regional economy as well as our energy grid”, said
Paul McCartney – chief investment officer of the RTN fund.
The connectivity roadblock
The acceleration of renewables deployment across the world implies a pending connectivity challenge. IEA data suggests that the pace of renewables deployment is exceeding the pace of grid updates. In the Netherlands, this has led to grid congestions, which risk delaying the integration of renewable energy. In South Africa, a lack of grid capacity in 2022 meant that the no new onshore wind projects were awarded
in the auction.
Addressing the grid congestion challenge therefore critical to deploying renewable energy. The AEMO’s view, that financing grid updates is urgent, is likely to be one of global relevance.