16 JUNE 2023

__A SOLAR-LED DECARBONISATION TIPPING POINT?: CEF’S NEW REPORT TRACKS THE BOOM |

Our new report, Solar Pivot, tracks massive global solar momentum on three fronts: rapid ongoing solar price deflation, multifold increases in solar manufacturing capacity and successive record solar deployments. This is coupled with the surge in electric vehicles, battery supply chains and ‘electrification of everything’.

We believe this foreshadows a series of global cascading tipping points that could dramatically accelerate the decline of the fossil fuel industry and the decarbonisation of the world economy, and improve our chances of tackling the climate crisis at the speed the science dictates. The economics of solar power are compelling, and will only get stronger this decade.

Key highlights:

1. Polysilicon prices are down two-thirds since December 2022. Solar module prices have dropped by a third from their 2021 peak. CEF expects solar electricity costs to drop 10% annually this decade, halving by 2030.

2. Solar has seen record annual installs every year this decade. BNEF estimates a global record of 268 GW in 2022. CEF foresees up to 1,000 GW pa of solar installs globally by 2030. 

3. BNEF estimates solar module manufacturing capacity at 600 GW in 2022. Announced solar manufacturing expansions will double capacity by 2024-25. The IEA estimates China alone will have 900 GW pa of manufacturing capacity by 2024, triple 2021 levels.

4. The IEA has consistently underestimated solar momentum and accordingly the disruption of the fossil fuel industry. Its World Energy Outlook 2022 estimates 462 GW of annual solar installs to 2030 under its Net Zero by 2050 scenario. There is likely manufacturing capacity for world installs of double this.

5. Leading by a huge margin, China is set for 120-140 GW of solar installs in 2023, and ~260 GW pa by 2030; accounts for 40-60% of global annual RE installs; and has 11 of the 12 largest new solar factory expansions at ~20-30 GW each. China’s solar module exports in 4MCY2023 are 69 GW, +41% yoy. 

6. The US Inflation Reduction Act is driving a 5x expansion in manufacturing capacity by 2024 and a doubling of installs to 40-50 GW pa to 2030; solar module import tariffs and production credits enhance local manufacturing. India will treble annual installs over 5 years, has a 40% solar module import duty, and 110 GW of manufacturing commitments driven by an Incentive Scheme. EU installs are set to quadruple to 80 GW pa by 2030; the Net Zero Industry Act targets 30 GW pa of module production by 2025.

7. Australia had 30 GW of solar installs at the end of 2022, and is the 6th largest solar market globally; installs are set to continue at >4-6 GW pa (3 GW pa being rooftop). With appropriate policy settings and capital investment, abundant land, sun and wind and other competitive advantages enable Australia to position itself as a renewables superpower, including in solar.

Section 8 of our report details the implications of the boom for Australia, and sets out key recommendations. These include our call for an ambitious domestic policy and funding response to the IRA, and for Treasurer Jim Chalmers to use MYEFO to introduce a solar module production tax credit – time limited to a decade – to onshore manufacturing, bringing high-value jobs back and reducing our reliance on solar imports from the current >99%.

>>> Read the full report, by CEF director Tim Buckley and CEF China energy policy analyst Xuyang Dong, here. 

>>> See some of our media on the solar boom report here, including a feature in SMH and across Nine papers, a story syndicated via AAP to Canberra Times and 100+ other mastheads, Guardian, Renew Economy, an op ed in Renew Economy, ABC’s The World Today, and AusBiz, with Sky News, S&P Global and others forthcoming on CEF’s website.

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__ POSITION PAPER: 5 REFORMS TO RAPIDLY MOBILISE AUSTRALIAN CLIMATE FINANCE |

The global energy transition race is on. In our new joint position paper, CEF’s Tim Buckley and Janaline Oh, executive director of Diplomats for Climate Action, identify 5 priority federal reforms to mobilise strategic, national interest capital at the speed and scale required for Australia to leverage the immense opportunities of global decarbonisation – and to align with the climate science. 

May saw a significant shift in geostrategic energy dynamics, with PM Albanese and US President Biden agreeing on a Climate, Critical Minerals and Clean Energy Transformation Compact. If approved by Congress, Australia will be deemed a domestic supplier under the Inflation Reduction Act, the flagship US clean energy initiative, making Australian companies and projects eligible to benefit from ~US$800 billion of decarbonisation capital.

To take full advantage of the opportunities afforded by Australia’s wealth of renewable energy and critical minerals, Australia should leverage its own considerable domestic public and private finance to support national decarbonisation objectives. CEF estimates that a public investment commitment of $100bn is required to crowd in private capital of around $200-300bn to position itself as a renewables superpower. One key source of this capital should be Australia’s world-leading $3.4bn superannuation pool.

The Albanese government has made significant strides in energy transition finance, committing some $40bn to decarbonisation to date. Our position paper proposes that the government now:

1. Reform the Future Fund to mandate long term national interest zero emissions investments

2. Create a new public asset fund in the Future Fund for critical minerals processing

3. Reform APRA superannuation benchmarks to prioritise low carbon investments

4. Issue Foreign Investment Review Board critical minerals guidelines on Australian equity and consistency with the Paris Agreement

5. Align the NAIF mandate with Australia’s Paris commitments

On point 4, super, we note the Treasurer’s announcement last week that, for the first time, the government will explicitly require the APRA to consider climate risk as part of its work, including promoting transparency on financial risks and the adoption of climate reporting standards – a move CEF applauds. We also note that our position is aligned with the Clean Energy Investor Group’s response to Superannuation Performance Test Regulations 2023 Exposure Draft consultation. And while NAIF now has an updated Statement of Expectations, the climate objective needs to be front and centre of its remit. Other government financial entities key to the transition such as CEFC, ARENA and the Future Fund also need updated mandates.

>>>Read our full paper here and the op ed in the Canberra Times. 

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__~$15BN QLD COAL ROYALTY REVENUE BOOM A MODEL FOR NSW |

Queensland’s $12bn Budget surplus this week – the largest ever by an Australian state – was a ringing real-time endorsement of treasurer Cameron Dick’s progressive coal royalties system introduced in June 2022.

QLD coal exporters pay royalties of 7-40% of revenues depending on coal prices, delivering a fair social dividend to Queenslanders in times of exceptionally high coal export prices. QLD recorded a massive $18.3bn of coal and LNG royalties and land rents in 2022/23, double that of FY2022.

The bounty has enabled the state to fund a $550 electricity bill rebate for all households ($1,072 for vulnerable homes) and to commit a staggering $19bn over four years for new wind, solar energy, pumped hydro storage and transmission, putting QLD within reach of  its 85% renewables by 2035 target, driving decarbonisation of the electricity grid and locking in deflationary, low-cost domestic energy supply. 

It is high time that NSW treasurer Daniel Mookhey do the same and review the 7-8% coal export royalty rate in NSW. The $12bn 2022/23 state deficit could have been a $5-10bn surplus if NSW had acted. Instead, the NSW government continues to forgo billions in coal export royalties every month, favouring the interests of predominantly foreign tax-haven based multinationals, who in many cases pay zero corporate tax and benefit from multibillion-dollar fossil subsidies, like the antiquated zero-strategic-purpose diesel fuel rebate for mining companies.

Currently, NSW coal export firms keep a record 92% share of export revenues, generating a ridiculously generous annualised 68.9% gross cash return on assets that, for example, climate-wrecking Whitehaven pocketed in the six months to December 2022.

Coal royalties could be invested in the urgently needed renewables and transmission buildout and in key project proposals such as the Dubbo critical minerals precinct, de-risking and attracting private capital and creating jobs to smooth the transition as coal plant closures accelerate. It could also offset retail electricity prices set to rise another 20% from 1 July as a direct result of the multinational fossil fuel cartel’s shameless price-gouging.

>>>Read our full op ed in The Guardian and our 2022 Windfall Profits report where we argued for coal royalty reform.

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__ CHINA STREETS AHEAD IN CLEANTECH INVESTMENT  DESPITE SLOWER ECONOMIC GROWTH |

April National Bureau of Statistics figures showed China continues to lead globally on decarbonisation, off the back of a renewables surge in Q1CY2023 and in the context of the IEA reporting that US$1.7 trillion will be spent on clean energy in 2023 – predominantly in China and advanced economies.

Despite an economic slowdown, China’s staggering renewables and solar expansion is expected to continue. For example, in 2022, China started construction on a 3GW and a 3.3GW solar power plant – the world’s largest; it installed 3 times the volume of solar capacity during the first 4 months of 2023 than in the same time period in 2022; and it has revised its forecast from the previous estimate of 129GW to 154GW of solar capacity installs this year. Bloomberg reports that if China lifts investment in decarbonisation to US$38 trillion, its emissions peak could happen this year.

Our paper from CEF’s Xuyang Dong examines the above data, the implications for global energy transition, and the opportunities China presents for Australia to position itself in the zero emissions world economy.

For example, Australia should be cooperating with China in the development of green iron – like promised by Rio’s new MoU with China Baowu Group, and a similar MoU with FMG – creating a green price differential in iron ore markets, leveraging our world leading renewable energy potential to power processing and value-adding pre-export.

>>> Read the full paper here

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__ FOSSIL DINOSAURS LEAP INTO AUSTRALIAN OFFSHORE WIND |

May 2023 saw Belgian offshore wind developer Parkwind and Australian oil and gas company Beach Energy announce a deal moving into Australia's offshore wind market. On the back of JERA’s acquisition of Parkwind – JERA being the largest thermal power producer in Japan – it appears we are seeing signs of two fossil fuel dinosaurs leveraging their financial firepower and offshore engineering expertise to capitalise on this major new renewable energy opportunity.

Our view is that this pivot lends itself to the interpretation that JERA and Beach are beginning to recognise the existential challenge to their business models of failure to act on decarbonisation. 

The development follows Exxon Mobil’s pledge to align 10% capex to 2027 into low emissions technologies, and comes on the back of persistent shareholder pressure at the Shell and Glencore AGM's the previous week,  where 20% of Shell shareholders voting against the company’s transition strategy, and 30% of Glencore shareholders voting against the company’s 2022 Climate Report.

>>> Read the full analysis by CEF’s Nishtha Aggarwal and Tim Buckley.

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MEDIA |

Our extensive commentary of the Australia-US Climate and Energy Compact continued across Nine papers, in The Saturday Paper and in PV Magazine. We also wrote for Renew Economy on AEMO’s projected power price hikes, and were active on other recent news – see our other media here.

OUR WORK |

We remain active in analysis of a range of key issues – see Our Work.

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.