1 DECEMBER 2023

BOWEN’S CAPACITY BOOST A GAME-CHANGER FOR ENERGY TRANSITION

The Coal-ition’s travesty of a “capacity investment scheme” – #CoalKeeper – is dead, buried and cremated. May Minister Bowen’s firmed renewables CIS 2.0 live long and flourish. 

With Australia’s decarbonisation credentials under scrutiny at COP28, and our bid to host COP31 in 2026, it can’t come a moment too soon.

Federal energy minister Chris Bowen’s boost to the Capacity investment Scheme (CIS) last week is a game-changer, expanding federal investment to underwrite a massive target of 32GW of new storage and renewables infrastructure. This is exactly the kind of bold, landmark federal ambition we need to rapidly transform Australia’s energy market whilst ensuring grid reliability and restoring energy affordability.

Importantly, the CIS will help facilitate the mothballing of end-of-life coal clunkers such as Origin Energy’s Eraring power station in NSW, Australia’s biggest, scheduled for 2025, while enabling stand-by capacity to ensure supply. It’s doubling of our existing ongrid renewables capacity underpins delivery of the critically important federal renewable energy target of 82% by 2030. And it will drive energy prices down sustainably and permanently. 

Nine gigawatts of the 32GW planned tenders announced will be dispatchable capacity, and an excellent value-for-money ‘contracts for difference’ scheme based on six-monthly tenders over the next 3-4 years will underwrite 23GW of variable renewable energy (VRE), i.e. wind and solar. For context of significance and scale, the National Electricity Market (NEM) currently has an installed capacity of 64GW (plus 7GW in WA).

Australia currently has 31GW of on-grid renewables and battery energy storage systems (BESS) (51GW including rooftop solar). This initiative will double our installed on-grid zero-emissions capacity, even as we continue to add >3GW a year of rooftop solar.

An excellent example of the CIS in action is the joint announcement last week by Minister Bowen and NSW Energy Minister Penny Sharpe of successful bids under the existing Scheme – 1,075MW of new capacity, representing $1.8bn in new energy infrastructure. The winning projects, all targeting operations by December 2025, are:

• BlackRock’s Akaysha Energy’s Orana REZ battery in Wellington, with 415MW / 1,660MWh 4-hour storage capacity

• AGL’s Liddell battery in Muswellbrook, with 500MW / 1,000MWh 2-hour storage capacity

• Iberdrola’s Smithfield battery of 65MW / 130MWh capacity

• 3 separate virtual power plants by Enel X Australia’s totalling 95MW with minimum dispatch duration of 2 hours.

When combined with existing projects under development, like the 850MW/1680MWh Waratah Battery, this new firmed capacity will accommodate the phased closure of Eraring in 2025.

Medium term reliability will be further underpinned by a separate NSW government tender Round 3 seeking 950MW of new wind and solar capacity, and 550MW of long duration storage (at least eight hours), before the end of this year, as flagged by Renew Economy.

When announced last December, the federal government said the original CIS would drive around $10 billion of investment in clean dispatchable power. This announcement will see an about four-fold lift in enabled utility-scale clean energy investment across Australia. 

We now need to see complementary policy levers at distributed energy resources (DER) level to sustain momentum. We call on Minister Bowen to extend the life of the Small-scale Renewable Energy Scheme – which creates a financial incentive for businesses to install RE systems – and increase the cap from 100k to 1,000kW, immediately boosting commercial and industrial deployments of DER, lifting system reliability and energy affordability for all.

>>See Tim Buckley’s interviews on the CIS including on ABC 7.30, ABC TV The Business, Sky News Afternoon Agenda with Kieran Gilbert (republished in The Australian), AusBiz and our op ed in Renew Economy.

>> See our joint statement  applauding the initiative with partners Simon Corbell, chair of the Clean Energy Investor Group, John Grimes, CEO of the Smart Energy Council, Stephanie Bashir, CEO of Nexa Advisory, Heidi Lee Douglas, CEO, Solar Citizens.

On a related note:

See Tim’s media commentary for the ABC on moderating energy prices as zero-emissions capacity comes online, energy market conditions change, and the federal government makes entirely justified interventions to protect consumers from price hyperinflation:

"The wholesale cost of electricity has come down more than 50% year on year in calendar year 2023 because the hyperinflation of gas and coal commodity prices internationally over 2022 has in 2023 progressively come off more than 70% from its peak.

Export thermal coal prices are still double long-term averages, but way down on the near 1000% increase that precipitated the collapse of the National Energy Market last June.

Other factors that have helped lower the cost of wholesale prices. The Albanese government’s price cap was a critically needed short-to-medium term intervention. And  new replacement zero emissions generation capacity and battery firming capacity is progressively coming online, particularly more than 3.2GW of new rooftop solar capacity in the last 12 months alone."

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NSW LEGISLATES THE CLIMATE CHANGE (NET ZERO FUTURE) BILL 2023

We celebrate an important milestone for NSW this week, as Energy Minister Penny Sharpe and the Minns Government legislate bipartisan action on climate change, acknowledging that the climate crisis necessitates urgent action – the first legislation passed in Australia to expressly refer to the UN-recognised right to a clean, healthy and sustainable environment. 

The Climate Change Bill has been enhanced by establishing guiding principles for action to address climate change. It sets out minimum greenhouse gas emissions reduction targets of 50% on net 2005 levels by 2030, 70% by 2035, and net zero by 2050, ensuring ambition can only ratchet up over time, and with 2040 and 2045 targets to be set.

It is especially pleasing to see the ambitious enhanced interim 2035 target of 70%. Time for the Federal Government to similarly commit to a >70% 2035 ratcheting-up of ambition, or more appropriately,  Zali Steggall’s 75 by 35 ambition, as is dictated by the Paris Agreement and the climate science. 

The new independent Net Zero Commission will provide recommendations on improvements to existing targets and advice to government departments and the Independent Planning Commission, hopefully driving a long overdue intergenerational equity into our planning approvals.

Australia faces yet another summer of extreme weather events driven by the climate crisis. Fossil fuel hyperinflation is smashing everyday Australians, exacerbating the cost of living crisis. The house insurance affordability crisis is a direct, present and growing barometer of the way the fossil fuel industry is externalising the costs of their climate destruction onto everyday Australians.

On the other hand, an accelerated transition to a low-carbon economy provides extensive opportunities for jobs and economic growth, particularly in the regions. The Bill provides a legislative basis to enable that transition.

>>Read our submission on the Climate Change (Net Zero Future) Bill.

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CHINESE ENERGY GIANTS' RENEWABLES PIVOT SPEEDS GLOBAL TRANSITION, SPELLS DECLINE FOR AUS' COAL EXPORTS

In our new report released this week, authored by CEF’s China energy analyst Xuyang Dong, we scrutinised investment trends in five of China’s largest energy-focussed State-Owned Enterprises (SOEs), with Xuyang reviewing corporate filings in the original Chinese to track capex flows. 

We find that all 5 SOEs are aligning their massive capex with the central government’s goal requiring a 50% increase in renewable energy generation and that 50% of incremental electricity consumption (increase in demand) come from renewables over 2021-2025. The target prescribing that renewable generation installed capacity reaches > 50% by 2025 has already been met and is likely to be surpassed by a significant margin.

China ends 2023 leading the world on all clean energy transition fronts. It is the world’s biggest market for renewable energy investment during the first half of 2023, with $177bn invested; in solar for example, it accounts for almost half of global large- and small-scale solar investment, adding 129GW of solar capacity in the year to September and underpinning >40% of BNEF’s forecast for annual global solar capacity installs of 392GW in 2023. It dominates the global wind turbine manufacturing industry accounting for 49% of the world’s installed offshore wind capacity. And it operates the largest number of hydropower plants globally. Beyond being the #1 EV market globally, China also became the world’s leading EV exporter in 2023.

China's domestic CO2 emissions are now expected to decline in 2024. We anticipate a structural plateauing of its emissions well ahead of its “dual carbon targets” dates, which prescribe peak emissions by 2030 and carbon neutrality by 2060.

China’s over-delivery on its decarbonisation objectives gives the world clear hope of mobilising the collective investment and action needed at speed and scale to align with the climate science – once again brought into sharp focus by the imminent COP28.

Further, China’s staggering progress has triggered a global race to the top as nations seek to secure supply chains and energy independence. The US ~$1trillion Inflation Reduction Act is a case in point, as it turbocharges the clean energy driven transformation of the US economy.

The rapid greening of the Chinese economy also has implications for Australia, as China's demand for Australian thermal and coking coal declines significantly. To mitigate economic risks, Australia urgently needs to draw a lesson from China's investment pivot and commit to a national, strategic-interest public capital investment package at scale to diversify our export base, and leverage the generational opportunity to position Australia as a leader in renewable energy and zero-emissions trade and investment.

>>Read our full report.

>>See the Australian Financial Review and The Canberra Times stories on the report, with an opinion piece in Climate & Capital Media forthcoming and Xuyang due to star on SBS TV's World Watch.

>>Also see our commentary on China’s decarbonisation progress in the light of the forthcoming COP28 in the South China Morning Post.

STILL ON CHINA… China’s leadership in decarbonising cleantech manufacturing to green the world 

CEF’s related recent publication this week, led by Matthew Pollard, examines the acceleration of cleantech manufacturing and deployment across China with a key focus on the aggressive scope 1-3 decarbonisation plans of four Chinese behemoths: CATL, LONGi, JinKO Solar and Trina Solar. These groups are far ahead of Australian corporate ‘leaders’ like BHP, Wesfarmers and BlueScope Steel. 

China’s Contemporary Amperex Technology Ltd (CATL) remains the largest supplier of batteries in EVs and energy storage (ESS) globally in 2023, with 37% global EV battery market share YTD September 2023, and 43% global ESS market share in 2022. 

Despite incredible growth in output, CATL has committed to achieving carbon neutrality in core operations (net zero Scope 1 + 2 emissions) by 2025, with full supply chain decarbonisation by 2035. From 2022, 3 production bases have been powered with 100% renewable energy in China, including the major 15GW Yibin, Sichuan facility. In October 2023, CATL received certification of its fourth zero-carbon factory in Chengdu, Sichuan. 

LONGi is the world's largest solar PV wafer manufacturer. It has committed to a 60% reduction in operational emissions by 2030 relative to 2020. LONGi simultaneously joined the RE100 and EV100 climate initiatives, committing to achieving 70% of energy demand from renewables by 2027 and 100% by 2028. Reaching 100% energy demand sourced from renewable energy by 2028 would abate 95% of LONGi’s operational emissions profile by 2028, outpacing the Science Based Targets (SBTi). The EV100 initiative aims to install EV charging facilities across 100% of operational sites by 2030. 

Australian corporate and political leaders continue to deploy still-subsidised fossil fuels across mining, refining and manufacturing operations. This headwind to decarbonisation endangers Australia’s economy as our key trade allies will inevitably look elsewhere to source zero emission supply chains. 

China is Australia’s no.1 trading partner, and largest customer of our nation’s legacy bulk commodity exports. Fostering strong trade, technology and investment partnerships with China is critical for Australia to realise its renewable energy targets and emissions reduction pathways, as well as enabling Australia to become a renewable superpower. With Australia’s abundant solar and wind resources to decarbonise our domestic and export industries, and China’s world-leading cleantech exports, our two nations can go green together, crowding in public and private capital via bilateral or multilateral climate cooperation platforms.

>>Read our full analysis

AND WITH COP28 STARTING…We can’t meet the proposed global pledge to triple renewables by 2030 without China

China’s global clean technology manufacturing domination is essential to achievement of a headline COP28 goal – to triple global renewable energy capacity by the end of the decade. 

Underpinned by massive investment, Chinese cleantech companies are manufacturing and exporting the key components of renewable transition – e.g. batteries, solar modules and wafers – at ever greater scale and in ever greater volumes, triggering a massive deflation in prices and accelerating global transition momentum. 

This has catalysed a surge in the global adoption and installation of low-cost, high-quality technology critical to decarbonising national grid systems and abating inflationary, high-emission fossil fuels. 

It is CEF’s view that without China’s leadership, there is no plausible path to a tripling of renewables by 2030 nor to limiting global warming to 1.5ºC. 

>>Read our full analysis.

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NAB & ANZ REPORT CARDS: PROGRESS, BUT CAN DO BETTER

Continuing last year’s climate finance report series on the big four Australian banks, CEF financed emissions analyst Nishtha Aggarwal found ANZ making solid progress on environmental lending, improved governance around energy transactions, yet its oil and gas financing policies allow more harm. 

ANZ began reporting under its massive $100bn target to 2030 moving $8.8bn in 2HFY23. $740m was on-balance sheet lending towards climate solutions (i.e. 8% of the total funded and facilitated). We commend ANZ on a material $9.6bn in environmental lending over 3 years (FY20 to FY22 inclusive) at an average of $3.2bn per year, and look forward to this doubling or trebling going in the next 3 years.

While governance around energy transactions is improving at the bank, ANZ needs to meet the global benchmark by committing to no new funding or facilitation of capital that enables fossil fuel expansion.

Strong financing restrictions must extend to energy customers who expect to rely on CCS as an emissions reduction strategy. This month the IEA published its Oil and Gas Report which finds little progress in the last two decades on the still commercially unviable CCS, making it an “inconceivable” emissions reduction strategy for energy customers going forward as it requires more than the entire world’s electricity demand today to power these technologies.

We also ask ANZ to take a stronger stance on its 2025 transition plans expectations for energy customers by requiring alignment with 1.5 degree pathways, and following best practice disclosure guidance from the Transition Plan Taskforce (TPT) which include business model implications, especially resourcing and operational and capital expenditure.

Read on for CEF's full FY23 ANZ report.

This year we find NAB made good strides in environmental lending, to a total of $4.5bn, comprising green commercial real estate, green securitisation, sustainability-linked lending and new underwriting and arranging activities. 

At the same time NAB’s exposure to renewable energy is higher than its on-book fossil fuel financing for the first time (but we note the full scope of its fossil value chain exposures and facilitative financing is not disclosed and this is likely to be multiples higher). We call on NAB for greater transparency in fossil fuel financing consistent with its environmental finance disclosures. 

NAB supported the Australian Industry Energy Transitions Initiative (ETI) which models a 36% reduction in Australian LNG exports to 2030 and 75% reduction to 2040 against a 2020 baseline guided by the IEA NZE scenario. However, NAB’s oil and gas (O&G) financing policy does not stack up to this ambition, with major gaps in corporate finance, bonds, and facilitative finance.

From FY25, NAB will require customers in O&G, metallurgical coal, and some power generation customers to produce credible transition plans. As above with ANZ, we call for the transition plans of the bank and its customers to align with international best practice disclosure frameworks and commit to transition pathway integrity with the ETI pathway it signed off on.

Read on for CEF's full FY23 NAB report.

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ALBO’S APEC TRIP KEY TO CLIMATE & ENERGY STATECRAFT

CEF partner and advisory board member, Blair Palese, founder of the Climate Capital Forum (CCF) and named as one of The Australian’s Top 100 Green Players, has backed the Prime Minister's attendance at the recent APEC meeting in San Francisco, a trip which has attracted criticism from certain sections of the media and the Opposition. 

"Albanese's attendance at APEC was specifically to show that Australia wants to be at the table with the other alliance members as they navigate global decarbonisation, and that we are committed to working with our regional neighbours in the Indo-Pacific Economic Framework for Prosperity (IPEF)." 

“Now, even more, Australia has to show countries with which we have co-operative partnerships and trade on climate technology and critical minerals -  China, Japan, Korea, India and the US - that we want to work with them.”

“We need to demonstrate that we have the capacity to partner with them to grow the development of sectors such as critical minerals, battery technologies and solar and wind resources that are needed to decarbonise all of our economies.”

>>Read Blair’s op ed, published in The Canberra Times and across Australian Community Media outlets.

>> CEF continues to work with the CCF, Smart Energy Council and our other partners to lobby for an effective policy response by the Albanese Government to President Biden’s US Inflation Reduction Act. We continue public and private engagement in the finance and government sectors on how this can be commercially effective. This week, for example, Tim Buckley presented as part of Professor Frank Jotzo’s excellent ANU Energy Update 2023.

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OUR WORK |

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PREVIOUS NEWS UPDATES |

Our previous newsletters covering major energy news can be accessed here.

Our highlights tracking decarbonisation progress in 2022, and our 2023 wishlist, are here.

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This newsletter is not intended to provide, and should not be relied on for, tax, legal, investment or accounting advice, nor is it an offer or solicitation of an offer to buy or sell, a recommendation, endorsement, or sponsorship of any security, company, or fund. CEF is not responsible for any investment decision made by you. Unless attributed to others, any opinions expressed are our current opinions only. Certain information presented may have been provided by third parties. CEF believes that such third- party information is reliable, and has checked public records to verify it wherever possible, but does not guarantee its accuracy, timeliness or completeness; and it is subject to change without notice.