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As the worldwide demand for fossil fuels is expected to decrease, Australia is confronted with a crucial necessity to cultivate emerging export sectors.
Failing to undertake this imperative could result in a sharp reduction in export earnings, intensifying a detrimental cycle where diminishing export revenue contributes to a devaluing exchange rate, there by escalating inflationary challenges.
In Australia's economic past, effectively navigating substantial investment cycles in the resources sector has posed challenges. The inflationary effects stemming from investments in the green transition mirror those seen in other forms of aggregate demand. Lessons learned from prior investment cycles can be readily applied to the current scenario.
Australia will be required to make substantial investments in electricity infrastructure in the coming decades, irrespective of whether the focus is on renewable infrastructure or not.
Experts state that Australia should leverage its inherent strengths in affordable wind and solar energy, extensive land, and abundant resources to produce environmentally friendly commodities like iron, aluminium, polysilicon, critical minerals, and biomass-based fuels on a global scale.
The aim should not only be to address its own 1.2 percent of carbon emissions but to significantly contribute to the decarbonisation of 8 to 9 percent of global carbon emissions.
Achieving this ambitious goal would necessitate an energy transition far more extensive than the current ongoing efforts.
Transition to sustainable energy –
The Commonwealth and the NSW government recently revealed securing of more than 1 gigawatt of additional dispatchable energy projects through the current Capacity Investment Scheme, totalling $1.8 billion.
Among the six approved projects, three involve significant battery installations, and the remaining three focus on distinct virtual power plants, showcasing a high level of demand.
Tony Wood, the energy program director at the Grattan Institute, suggested that a contract-for-difference might be the most effective approach to meet renewable targets.
The recently introduced federal initiative aimed at assisting New South Wales (NSW) in generating an additional 1 gigawatt of energy, sufficient to meet the needs of 430,000 households by December 2025,will reduce the timeframe within which the Minns government must compensate Origin Energy for the Eraring power station.
However, despite this effort, the state is expected to encounter a reliability gap in the 2025-26 period.
In response to the impending shortfall in supply due to the closure of older coal-fired power stations, both NSW and federal policy makers are working swiftly to address the reliability challenge anticipated for 2025.
Chris Bowen, commenting on the new collaboration that includes the use of batteries, expressed optimism that it will contribute significantly to ensuring the state's energy stability, especially during the summer months.
It is also anticipated that the real expenses associated with a shift towards sustainability will decrease as technologies progress down the cost curve.
As deployment of these technologies’ increases, costs are expected to decline, making the overall transition more cost-effective. Initiatives such as the Capacity Investment Scheme and Hydrogen Headstart,formulated by the government, aim to incentivise early adopters to invest in these technologies. This strategic approach of front-loading investments is projected to result in reduced costs for the entire transition process.
It is also expected that a well-executed green transition will help prevent a notable risk of inflation, particularly in terms of price spikes. This risk arises from potential inefficiencies in electricity supply to meet demand when coal plants are phased out.
Transitioning to a low-carbon electricity system offers a means to mitigate the economy's vulnerability to significant price fluctuations associated with fossil fuel price hikes, exemplified by recent events following the Russian invasion of Ukraine.
The establishment of renewable generation facilities eliminates the continuous dependence on purchasing fuel at rates determined by global commodity markets.
This presents an advantageous prospect to enhance the sustainability and stability of the economy's energy supply capacity, utilising resources that are inherently "renewable."
Involvement of public sector programs –
“It is advisable to consider investing in initiatives that can facilitate the large-scale development of projects, and one noteworthy program in this regard is the Global Infrastructure Facility (GIF), which operates under the auspices of the World Bank” a report from JP Morgan stated.
It also stated the importance of a global collaborative platform, the GIF plays a crucial role in offering financial support and advisory services to governments in Emerging Markets and Developing Economies(EMDE).
Its primary focus is on guiding these governments through the entire process of project development, including selection, design,structuring, and the successful introduction of sustainable and financially viable infrastructure projects to the market. Established during the G20 summit in 2014, the GIF is specifically tailored to address the challenge of mobilising private sector resources on a significant scale.
The impact of funding from the GIF is noteworthy, with every $1 invested in project development leading to an impressive $101 in private sector financing. This demonstrates a remarkable multiplier effect, showcasing the program's efficiency in utilising public funds.
The success of the GIF is evident in its involvement in 166 advisory activities across 67 countries, resulting in the financial closure of 16 projects, and an additional 5 currently in the commercial closing stage.
As the overall portfolio continues to mature, the GIF foresees more project closings in the near future. This underscores the effectiveness and potential for positive outcomes associated with the GIF's approach to large-scale project development.
With a growing demand for transition to sustainable energy, build and scale your project with equity, debt or non-dilutive funding with éthica capital.
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