Opportunities for private capital to increase renewables investment, despite the transmission logjam

By Kate Axup, Harry Beardall, Danielle Jones, Tom St John
Dealmakers & Investors Energy Private Capital Private Equity Renewable Energy

Amid fears that Australia's ambitious grid buildout is falling behind schedule, how are investors continuing to deploy capital in renewables projects? 7 min read

Among other things, the success of Australia's energy transition depends on a swift and coordinated expansion of our transmission networks to facilitate the connection of more renewable energy generation and storage and the staged exit of coal. Yet despite billions earmarked for transmission investment, a number of factors confront network operators and investors, such as social licence concerns, supply chain disruptions, skilled labour shortages and a protracted process for regulatory approvals.

This bottleneck is contributing to a supply and demand imbalance for investors as the pace for new investment opportunities in renewable energy projects slows. When combined with high interest rates and other macro-economic trends, the transmission logjam—and the increased development risk for early-stage projects—resulted in a challenging investment environment for renewable energy projects in 2023.

While we do still see a pipeline of investment opportunities in renewable projects in 2024, given the various headwinds, we are seeing some investors divert their attention to alternative green investment opportunities.

Our recent Insight provided a snapshot of some of the emerging alternatives to utility scale generation, how they shift reliance away from the grid, and recent regulatory developments.

This Insight looks at this trend from the investor angle, identifying the alternative models for investment that will enable investors to continue to expand and diversify their renewable energy portfolios despite the transmission logjam.

Key takeaways

  • We have seen an increased interest in investment in distributed renewable energy platforms. In these investment structures, generation assets are connected directly into the distribution network at scale, allowing investors to increase their exposure to the energy transition through aggregating smaller scale projects that are not traditionally available to 'big capital'.
  • Likewise, there is growing investment appetite in 'behind the meter' renewable generation and storage to support large-user infrastructure, driven in part by new government schemes providing financial incentives to cut emissions at some of Australia's most carbon-intensive facilities.
  • Overall, there is optimism that 2024 will continue to bring innovative solutions and alternative models for investors to continue to build their green energy portfolios despite the challenges faced by Australia's energy transition.

Investment in distribution-connected assets

Last year, Aware Super, advised by Allens, partnered with Birdwood Energy to form a new Australian distributed renewable energy platform that will invest in smaller-scale, decentralised renewable generation assets, often coupled with battery storage for firming capacity. Aware has committed to an initial investment of $300 million, which may rise to up to $2 billion.

Investment in platform or similar structures centred around generation assets that connect directly to the distribution network, enables investors to:

  • increase their exposure to the energy transition in a way that avoids issues caused by the lagging rollout of transmission infrastructure;
  • access expedited connection processes and deployment timeframes that are typically associated with smaller scale projects;
  • diversify existing renewables portfolios, typically dominated by utility-scale wind and solar projects; and
  • harness the platform nature of the investment to access and aggregate smaller scale projects that may not traditionally be available or attractive to 'big capital'.   

From a legal perspective, platforms of this nature present a number of challenges that must be addressed by the parties (being the investor on the one hand, and the developer on the other). In particular, the need to:

  • ensure that incentives for acquisition, development and return on investment are aligned between the parties;
  • clearly define the scope of assets to be targeted and developed by the platform;
  • clearly demarcate which assets will be developed and owned by the platform, and which assets will remain under the ownership of the developer; and
  • establish a governance framework that gives the investor sufficient control rights without undermining the platform's ability to efficiently acquire and develop assets.

Investment in co-located energy infrastructure

As the development of utility-scale renewable projects continues to be hampered by the transmission logjam, connection delays and complex regulatory approval processes, some corporates have adopted the practice of powering large-user infrastructure by co-locating batteries and renewable generators as an alternative to renewable backed power purchase agreements.

Industrial on-site generation is common in remote mining operations, historically relying on gas or diesel generation. In recent years there has been an increase in co-located renewable generation and battery storage capacity at these sites to lower the use of gas and diesel facilities. Further, the revamped Safeguard Mechanism, which rewards large emitters with tradeable certificates for decarbonising operations below their site-specific emissions baseline, is likely to promote a continued adoption of behind the meter renewable energy infrastructure.

To date, investment opportunities in co-located renewable generation have been limited, mostly restricted to the acquisition of specialist providers (such as PEP's acquisition of Zenith Energy and QIC's acquisition of Pacific Energy).

However, as industrial heavy-emitters increasingly turn to co-located renewable generation to decarbonise their operations, we expect investment opportunities to increase as the heavy-emitters look to private capital to help fund the initial capital outlay.

We are also seeing the growth in interest for co-located energy storage facilities at utility-scale renewable generators which are either operational or under construction. As confidence grows in the bankability of these projects, some renewable energy generators are looking to capitalise on the existing connection infrastructure to expand facilities with co-located storage infrastructure, offering the flexibility to dispatch energy during more profitable periods and mitigate the risk of curtailment from nearby generation facilities or earn multiple revenue streams by providing system support or ancillary services.

Investment in other new technologies

In addition to the pathways noted above, there are a number of other innovative technological solutions that some investors are exploring to diversify their green energy portfolios—each of these are explored in more detail in our recent Insight.

Demand response

Demand response or demand side response refers to consumers and businesses voluntarily reducing or shifting their demand to help balance the grid. One example of investment in this alternative is the development of Demand Response Software, a catch-all term for a range of digital infrastructure seeking to maximise efficient energy demand. The Digital Infrastructure Energy Flexibility pilot project kicked off in 2023, spearheaded by the CSIRO and funded by the NSW Government and a consortium of project sponsors, with the goal of building innovative software applications to manage power usage to align with periods of high renewable generation and cheaper spot prices. We have seen a growing interest among private equity investors on holistic demand response solutions that are often integrated with DER technology (discussed below), bankrolling operating entities that seek to provide end-to-end services for consumers to harness the savings from reducing energy consumption.

Consumer Energy Resources (CER) / Distributed Energy Resources (DER)

DER is a broad categorisation of energy technologies, but at its core refers to consumer-driven energy management systems that seek to reduce demand on the grid (in lieu of a reliance on expedited rollout of supply-side solution). The most common examples of at-scale deployment of DER is rooftop solar photovoltaic systems, which the AER reports contribute the equivalent to 23% of generation capacity across the NEM. While the rooftop solar market in Australia is, compared to other jurisdictions, relatively congested, we are increasingly working with investors focused on growth opportunities in the sector—in particular, investment in vehicle-to-grid storage technology and Virtual Power Plants (for both residential and commercial properties).

Virtual Power Plants

Virtual Power Plants (VPPs) work by aggregating distributed energy resources across various locations and dispatching into the market as if they were a single renewable generation facility. The development of energy management software and DER is central to the investment case for VPPs, specifically in managing diffuse energy resources to improve energy reliability for customers while reducing emissions and grid-reliance. We have seen limited capital investment in VPPs to date—primarily stymied by concerns with the technical complexity required for a large-scale rollout and comparatively high initial costs—however, particularly as the technical challenges are overcome and the path to investment return becomes clearer, we expect to see more investment opportunities arise for this exciting technology.


Microgrids are self-sufficient small-scale power grids that can support localised consumers. One key feature of microgrids is their ability to 'island' from the NEM during outages or periods of high spot-prices and then reconnect to the grid when normal operating conditions are restored. The private sector has been reticent to embrace microgrids to date, fuelled by concerns with development risk and opaque investment return profile. However, the Federal Government has earmarked upwards of $70 million to kickstart innovation and investment in microgrids to bolster energy security in off-grid or fringe-grid communities. In early 2024, Ausgrid announced it had commenced work on the Merriwa renewable energy microgrid trial in the upper Hunter region of NSW, ensuring off-network power supply to key local infrastructure during extreme weather outages. While investment opportunity is currently largely limited to very early stage opportunities, we expect to see growing interest in this technology amongst a broader range of investors.

Looking forward

In many ways, 2023 was a frustrating year for those in the energy industry, with the promise of a wholesale uptake of green energy tempered by the reality of the sheer scale of infrastructure and investment required to bring this hope to fruition and undermined by a challenging investment environment. Nevertheless, this temporary drop-off in the pace of new large-scale renewable projects gave rise to a suite of innovative solutions to outmanoeuvre the transmission logjam. Even with promising indications that 2024 will bring an easing of the supply chain headaches and delays in regulatory approval (which may facilitate greater activity in large-scale renewable projects in the year ahead), we expect we will continue to see considerable interest in alternative models of green energy investment.