The Australian government has invested more than $5bn in upgrading its transmission infrastructure, as the need for private and public capital in grids rises globally.
On December 21, the Australian federal government and the state government of New South Wales announced a joint deal worth A$7.8bn ($5.3bn) to support eight critical transmission grids and renewable energy zone projects. It is expected that this investment will also support more than 3900 jobs.
Part of prime minister Anthony Albanese’s Rewiring the Nation policy, under which the government will invest a total of A$20bn ($11bn) to modernise the grid, the latest announcement is a big part of the country’s strong ambitions to transition from a coal- to a renewables-powered electricity grid.
David Dixon, analyst at Rystad Energy, tells fDi that this grid transmission is the “biggest issue” Australia faces.
“We’ve been adding wind and solar photovoltaics so fast that we’re running out of transmission space on the existing network. The funding to upgrade the grids is, essentially, the government saying: ‘Get on with these [transmission] projects; we need them and we need them now’,” he says.
Like many countries, the electricity grid in Australia, particularly on the east coast where New South Wales is, was built around power plants and urban centres, and was therefore not built with solar or wind projects in mind. As capital has flooded into the buildout of renewables, the proposed capacity for renewables has outstripped what the grid can support.
Across Australia, there is roughly 446 gigawatts (GW) of renewable energy capacity at all stages of development, according to Rystad estimates, while the country currently uses only around 40 GW of renewables capacity.
Mr Dixon says that even excluding mega-green-hydrogen-for-export projects, the proposed renewable energy capacity is still greater than what the country projects it will need over the next three decades.
The A$7.8bn investment will also connect Snowy 2.0 hydropower project to the grid, slated to add 2GW to existing capacity and unlock transmission projects, notably in New South Wales, such as HumeLink and VNI West, as key coal-powered plants are set to come offline in the near future.
With many governments around the world embarking on a path to increase the green energy capacity in their electricity grids, this could spell a precursor of developments to come elsewhere. Bloomberg New Energy Finance (BNEF) estimates that the world needs $21.4tn in grid investments by 2050 to achieve net zero.
In January, the Norwegian Climate Investment Fund and KLP, Norway’s largest pension company, announced an investment of Rs900m ($11m) in an Indian transmission project by Indian renewables company ReNew Power, as reported by the Economic Times. Norfund and KLP did not respond to requests for comment.
Saji Anantakrishnan, head of Australia and Asia infrastructure at real assets investment management company Patrizia, says that “with such large funding requirements, government funding will need to work hand-in-glove with institutional or private capital”.
“In developing Asia, the opportunity is perhaps even larger as the non-electrification rate currently is among the highest in the world,” he says, adding that rising demand for energy will need to be supported by “significant investment in transmission”.
In its World Investment 2022 report, the International Energy Agency (IEA) outlined that public funding underpins spending on grids, especially in emerging markets.
The IEA cites a recent decline in investment in transmission and distribution in emerging markets and developing economies, adding that this “highlights a major challenge for clean energy transitions and the acceleration of electrification in these economies”.