As energy supplies continue to preoccupy investors amid the ongoing turmoil in world markets, momentum is building for an accelerated shift to alternative and renewable energy sources.
Wind power has gained considerable traction as a credible alternative to fossil fuels, largely thanks to the relative ease with which it can be installed. Regional investors such as Australia’s sovereign Future Fund and New Zealand Super are now ramping up their activities in the space.
“The wind farms that are going to come online in 2026 to 2028 will generate and sell their electricity at around one-fifth of the price of electricity today,” Richard Nourse, a managing partner at renewables investment manager Schroders Greencoat, told AsianInvestor.
Nourse explained that wind farms can sell electricity at a price that’s effectively fixed for 15 years under an arrangement known as a contract for difference, in which the price of power is indexed annually to the consumer price index and guaranteed by a government-backed entity.
“This provides tremendous price certainty to the projects as well as an attractive inflation linkage,” he said.
Nourse said wind farm projects can be expected to have an extremely predictable inflation-linked revenue stream for the first 15 years of their lives, becoming fully exposed to spot electricity prices only in their later years.
New Zealand’s NZ Super Fund and investment firm Copenhagen Infrastructure Partners (CIP) have started work on a study of future industry requirements to support the development of a large-scale offshore wind farm in the country. The Industry Capability Mapping study is the first step in the companies’ joint exploration of the opportunity to develop a 1GW wind farm off the coast of Taranaki in the southwest of New Zealand’s North Island.
NZ Super has committed $150 million to CIP's Energy Transition Fund, which focuses on developing large-scale sustainable energy infrastructure known as “power-to-X” – a term that refers to surplus electric power from renewable energy being converted to other energy sources such as gases, liquids and heat.
Its developers say that if the project goes ahead, it would supply 11% of New Zealand’s current operational electricity generation capacity and could power more than 650,000 homes among the country’s population of around five million.
“Taranaki is hugely attractive to offshore wind developers,” CIP senior business development manager Giacomo Caleffi told AsianInvestor. “Not only is the wind strong and consistent – the region has many of the associated infrastructure and capability requirements you need to support offshore wind.”
Notably, the existing oil and gas industry in the area has produced an abundance of transferable skills in structural and electrical engineering, environmental management, marine servicing, surveying, manufacturing and logistics.
“This presents considerable opportunities for existing businesses who are considering how they might transition from extractive industries, and for new businesses to spring up to service the wind farm,” Caleffi said.
NZ Super and CIP say that subject to successful community consultation and a feasibility study, the project will see approximately 70 wind turbines installed between 23km and 30km offshore. Initial estimates indicate that the project could directly create up to 2,000 jobs during its construction phase and jobs for around 150 personnel on an ongoing basis.
The government of New Zealand prime minister Jacinda Ardern is supporting businesses in making a switch to clean energy through investment in its Decarbonising Industry fund, which has so far reduced lifetime emissions by 7.4 million tonnes. It is also accelerating the use of low-carbon technology, renewable energy and low-emission vehicles by quadrupling funding for government-established bank New Zealand Green Investment Finance.
NZ Super Fund spokesperson Conor Roberts told AsianInvestor that the fund was not unduly concerned about the risk that the offshore wind initiative could be stalled if there were a change of government following a general election next year.
“Should the project proceed, and subject to relevant regulatory approvals, CIP and NZ Super could deliver power by the end of the decade and the project would be operational for at least 30 years,” Roberts said. “This means it requires multi-partisan support.
“Political parties generally recognise the need for additional renewable sources of energy and support large-scale investment into the country. We have no concerns that a change of government would represent a barrier to its eventual construction.”
In neighbouring Australia, meanwhile, the recent change of government has prompted the country to try to catch up following the previous administration’s decision not to commit to accelerating its emissions reduction programme after the COP 26 climate conference last year.
Commenting on Australia’s new Climate Change Bill, which mandates reducing carbon emissions by 43% from 2005 levels by 2030 and cutting them to net zero by 2050, John Wang, a senior analyst at Moody’s Investors Service, said: “It provides a strong policy signal that will support robust financial flows toward low-carbon sectors and technologies.
“However, the full credit implications from the bill for carbon-intensive sectors will unlikely crystallize until substantial action plans are introduced by the Climate Change Authority and adopted by the government.”
Australia’s Future Fund already has renewable energy assets worth around A$1 billion ($667.4 million), including offshore wind exposure via investment fund Global Infrastructure Partners, whose wind power assets include Vena Energy, said to be the largest independent power producer in the Asia Pacific region, which is active in solar and wind energy generation, and battery storage.