Making Australia’s Midwest more attractive to inbound clean energy investors

Australia’s Midwest is globally recognised as a hotbed for clean energy infrastructure, given its complementary wind and solar penetration profile, significant land area, and proximity to north Asian trading partners. Despite this, the region has seen less inbound investment than the likes of Pilbara and Australia’s South West.

Gilbert + Tobin Partner, Clare Pope – who advises on the development of clean energy projects – believes several factors may be to blame for investor hesitation. She says investors and proponents should work together to tackle these and unlock the Midwest’s potential. Failing to do so, could see the area missing out on a “superb, rare and immediate opportunity” for development.

“We have lots of advantages in this part of the world. But if we don’t take measures to address the delays and regulatory burdens we are seeing build up, the projects we want to see developed in the Midwest, may be put on the back-burner.

“Meanwhile, other faster-to-market projects, with lower regulatory burdens and greater government support, will take FID and cater to the demand centres for the next 30 – 40 years,” she said.

Supply chains are needed now

In particular, Ms Pope is concerned that these constraints could mean new energy and mineral processing supply chains are established elsewhere in the world. Once capital is allocated, these opportunities will be lost until the next investment cycle, she warns.

“For example, when you have the likes of Korea and Japan announcing their demand for ammonia offtake supply by 2028, there is an under-appreciated urgency. Our global competitors are striving to supply those offtake markets, so we need to get our house in order. Otherwise we risk the supply chain being set up elsewhere.”

Client feedback

While feedback from Ms Pope’s clients points to an overall positive perception of Australia’s Midwest, more work is needed to meet investor expectations.

“WA is highly regarded in terms of developing clean energy projects – there is good wind, sun and lots of land. However, investors are being challenged by the regulatory burden which impacts both the cost of supply, and the project delivery timeline.

“In the short to medium term, there will need to be some form of assistance to bridge the costs to compete with more carbon intensive products, because we are not seeing the emergence of a green premium.”

Meanwhile, global competition is adding an extra layer of pressure, she says.

“Capital is mobile and pressure is rising to speed things up. Yes, investors love our stable government, but questions are being asked around the regulatory regime and its increasing burden – this impacts project time-frames, and if we can’t make time-frames, they will look elsewhere.”

In particular, the Inflation Reduction Act has made the US an attractive alternative to Australia. While more people now recognise the challenges in satisfying its criteria, Ms Pope says its very establishment took the wind out of Australia’s sails – the aftereffects of which still linger.

“A lot of skills and minds naturally flowed to the US, and we were working with a skills shortage as it was,” she said.

So, how should governments and project proponents respond to these challenges?

Government response

The size of wind and solar farms required by foreign consumers require huge amounts of upfront capital to bring down the Levelised Cost Of Electricity (LCOE).

Ms Pope is concerned that current policy settings may not adequately support the capital intensive nature of these projects and recommends that governments offer a faster path to market in terms of approvals and land access.

“We need to see a significantly more thoughtful approach to engaging with traditional land owners, this needs to be done as early as possible in project development, and in a culturally appropriate way, to help secure land access.

“This might mean broader considerations beyond what has traditionally been included in native title agreements, such as compensation, into a more substantive role for traditional owners. Some projects could be developed with equity involvements, others with domestic offtake.

“It would also be good to see stronger subcontracting obligations with Traditional Owners – further efforts to build capacity, education and training. All of these things are very important, and show that we have taken heed of the recommendations from the RIC Report by John Taylor in 2018.”

In a similar vein, fast-tracking the establishment of ports, development-ready land and other supporting infrastructure should be a major priority for the government. This could involve working with other local project proponents and building infrastructure with multi user functionality.

“It would be good to have a third party develop expensive infrastructure that does not need to be done on balance sheet for a project proponent; and that can be developed in a thoughtful and phased manner to size up for further capacity and regional projects that are being developed or planned.

“This would require close collaboration with government and project proponents and would be a move away from a pit-to-port strategy for resource project development in Australia,” Ms Pope said.

Project proponents

However, the onus is not just on governments to secure inbound investment opportunities, with project proponents playing an equal role in optimising finance.

“It’s important to have your house in order and be structured with your approach,” Ms Pope said. “If courting interest from potential investors, make sure you are weighing up the pros and cons of approaches that are made to you. It’s really important to have alignment with any incoming project proponent. Also, don’t trade control of your project unnecessarily, or too early, because it can limit your options and stymie your project.”

This discernment will be bidirectional, with inbound investors from this asset class more keen to interrogate financial models and have confidence with EPC contractors.

“They will attach great weight to the nature of the partner they are seeking and what they will bring to their project,” Ms Pope said.

Like with governments, foreign investors will also be seeking certainty around land and infrastructure access, when dealing with project proponents. “They will be looking for all things you’d expect – and this includes positive engagement with traditional owners.”

Further insight

Sharing more expert opinions on how Australia can win more share of the global clean energy supply chain, Clare Pope will present the Midwest and Gascoyne Conference, hosted by Informa Connect.

This year’s event will be held 17-18 April 2024 at the Novotel Perth Langley.

Learn more and register here.

About Clare Pope

Clare Pope is a partner in Gilbert + Tobin’s energy and resources team, based in Perth, and advises clients in relation to the development of major projects and M&A in the energy, and energy transition space.

Clare is currently supporting the development of a number of key projects in the Midwest region of Western Australia across hydrogen, low carbon, CCS as well as the development of infrastructure.

She is also advising on significant renewable power and BESS projects across Australia.

Clare has worked in Perth, London, Singapore, Tokyo and Kuala Lumpur.