Industry SuperFunds signal major shift in strategy for clean energy sector

By Simon Corbell

Industry SuperFunds’ recently released discussion paper, Modernising Electricity Sectors (click here for report) is attracting attention for  the potential role of nuclear power generation in a decarbonised electricity grid for Australia. But we need to look beyond the nuclear controversy and focus on the four critical messages to investors, policy makers and advisers.

4 Critical Messages

1. ​1.  Without decarbonisation reform, Australia will not be competitive
2. 2.  Emission reductions to acheive less than 2 degrees must drive investment decisions
3. 3.  Regulation of the electricity sector needs new mechanisms to speed transition
4. 4.  Proactive advocacy approach needed for energy policy to progress

1. Without decarbonisation reform, Australia will not be competitive 

Industry super funds, and other investors, must make long run investment decisions anticipating a net zero carbon economy by 2050. In a detailed analysis of the long term trends and challenges for the decarbonisation of the electricity supply sector it recognises that without reform, and a decisive shift to low carbon technologies, Australia’s economic competiveness will face a slow decline.   This call matches conclusions recently released by the CSIRO in its 2019 Australian National Outlook (click here to read) which warned of risk to Australia’s long term prosperity without a commitment to long term environmental, economic and social reform in a future low carbon world.

2. Emission reductions to achieve less than 2 degrees must drive investment decision

The paper highlights that emissions reduction to achieve a less than 2 degree change in global temperature is a hard constraint which all investment decisions should have regard to. It goes on to describe policy inaction on the basis of Australia’s relatively small scale globally as “ childish”. This unequivocal statement from the managers of Australia’s multibillion industry superannuation sector is a message that the newly returned Federal Government, and in particular Emission Reductions Minister, Angus Taylor, should heed urgently.

3. Regulation of the electricity sector needs new mechanisms to speed transition

The paper highlights that administrative action and government leadership to unlock investment in the electricity sector, and drive decarbonisation, is essential. In grid planning it recognises the need for a central planning function by an independent agency, identifying that Australia’s market based regulatory investment framework for transmission upgrades is inadequate. Determining the priority for transmission upgrades should have regard to system requirements and the decarbonisation objective, and it recommends an enhanced role for AEMO and the Integrated System Plan, and by default, coordinated development of new Renewable Energy Zones.

It also argues that to unlock investment in clean or low emission generation long term contracting is essential. It proposes the development of long term ( 20 year) contracts, either PPA’s or Contract for Difference mechanisms should be awarded by state governments to underpin investment certainty and bring forward the capital required for the transition, particularly for clean energy with storage. This would build on the experience of state based reverse auction programs and recongises the cheaper capital available, and return on investment expected, from super funds.

4. Proactive advocacy approach for energy policy to progres

Fourthly, the paper signals that industry super funds must be much more proactive on energy policy generally, and the energy transition specifically. It argues for a forward leaning position on policy development, creation of new innovative financing mechanisms and a need to invest in generation, storage and innovation technologies that will be needed as the transition accelerates due to growing public and political pressure for action. The paper recognises that super funds can be highly influential in nudging policy makers and the market towards a low carbon future through the investment signals they send. Its recommendations for a proactive advocacy approach by the sector will have significant ramifications for the energy policy landscape moving forward.

This is a critical intervention from the industry superannuation sector, as the volume of funds under management have the potential to heavily influence and direct the future energy transition. The sector is now signalling it intends to use that weight to shape the pubic policy debate, and the growth of the clean energy sector. It is also a fresh opportunity for greater engagement by the clean energy sector with super funds as the energy transition continues to accelerate in Australia.