Grant Thornton flags critical considerations for renewable energy projects
The accounting firm outlines a range of important factors impacting the success of renewable energy projects as Australia increases its renewable energy ambitions.
Australia’s commitment to renewable energy transition provides a “transformative opportunity” for businesses but careful planning, coordination and investment in infrastructure will be crucial to successfully integrating new projects and maximising output, says Grant Thornton.
Addressing challenges related to impairment models, debt funding, covenant breaches, curtailment, and grid access will be key to realising Australia's vision of a sustainable future powered by renewable energy, according to Grant Thornton partner Jannaya James and directors Kate Bonner and Dilip Shankar.
In a recent article, the accounting firm identified a range of important considerations for ensuring the success of renewable energy projects for developers, owners, asset managers and energy retailers.
One of the challenges that can emerge with renewable energy projects is grid integration, the accounting firm said.
“As renewable energy capacity expands, curtailment and grid access challenges may emerge. Curtailment refers to the reduction or shutdown of renewable energy generation due to grid congestion or imbalances between supply and demand. To avoid economic losses and wasted potential, proactive measures should be taken to enhance grid flexibility, integrate energy storage technologies, and establish mechanisms for efficient load management,” the article said.
“Close coordination between government agencies, energy regulators, and industry stakeholders is crucial. Comprehensive impact assessments should be conducted to identify potential areas of conflict and determine appropriate grid upgrades. Moreover, upgrades must be prioritised to enable efficient transmission and distribution of renewable energy across the country.”
As Australia accelerates its renewable energy ambitions, the accounting firm warned that issues related to impairment models, debt funding, and covenant breaches may also arise.
“Impairment models play a critical role in assessing the financial viability of renewable energy projects. With the introduction of new projects, the potential exists for older projects to experience decreased capacity factors, impacting their financial performance,” the article said.
“It is crucial that robust impairment models are employed to accurately evaluate the assets and ensure sustainable investment decisions.”
The accounting firm said that debt funding is another important aspect of the renewable energy transition
“The government must work in collaboration with financial institutions to develop innovative funding mechanisms that support the growth of renewable energy while managing associated risks effectively,” the firm said.
“Careful consideration of project economics, cash flows, and debt service coverage ratios is necessary to prevent covenant breaches that could have adverse effects on project financing and investor confidence.”
Grant Thornton said that energy retails that active or looking to enter the renewable energy market are facing their own set of challenges.
“The changing energy landscape and increasing energy costs have seen energy retailers adapt their business models by adopting more flexible strategies to support customers. This requires developing sophisticated forecasting and balancing mechanisms to match supply with demand accurately,” the accounting firm said.
“Energy retailers must also navigate complex regulatory frameworks and market structures to procure renewable energy at competitive prices. They also face the task of educating and engaging consumers to embrace renewable energy options, promoting energy efficiency, and facilitating the transition to smart grid technologies.”
Retailers may be able to diversify their energy portfolio and provide customers with cleaner energy options through mechanisms such as power purchase agreements (PPAs), virtual power purchase agreements (VPPAs), and direct investment in renewable projects, the article said.
Grant Thornton said while data from the June 2023 Australian Energy Retailer performance report outlined positive developments for the sector such as price reductions and bill relief initiatives, “challenges related to debt, complaints, and disconnections have persisted”.
“In response, Government and retailers should collaborate to support the ongoing effectiveness of government support initiatives, addressing the rising number of consumer complaints, and ensuring the retail energy market’s ongoing focus on affordability and sustainability,” it said.
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