Private Capital Pulse: Episode 1 – Energy Transition

Transcript Episode 1

Hello and welcome. One of the biggest stories in global markets in recent times has been the stellar growth of private capital investing. Now measured in the trillions, private capital markets dominate as investors chase higher yields and alternatives to public markets. I'm Jon Ireland, a corporate funds partner at DLA Piper based in Sydney. DLA Piper’s global capability and local knowledge gives us unique access to all the key markets. Leaning on our leading global corporate M&A and investment funds capability, we achieve exceptional results for our clients most ambitious plans. You're listening to Private Capital Pulse, a new series brought to you by DLA Piper Australia. Private Capital Pulse will be unpacking some of the latest trends and analysis in private capital markets through a series of bite sized interviews.

We'll be diving into some of the latest issues impacting investors and their investments and looking at this from multiple perspectives involving colleagues and experts from here in Australia and also overseas.

So whether you're an investor, a sponsor, a service provider, or just simply interested in following the private capital market space, Private Capital Pulse is for you. Well, I'm delighted today to be joined by Chris Mitchell. He's a partner in our M&A Team and who focuses on the renewable energy and energy transition sector. Chris, it's great to have you with us.

Thanks, Jon. Really appreciate being here. Looking forward to joining you on Private Capital Pulse.

Terrific. Well, let's kick off. Chris, what are you seeing in terms of appetite among private capital investors for investing into the renewable energy and energy transition sector?

Yeah, thanks, Jon. I think it's no secret that there has been a significant amount of demand from private investment into the Australian energy and particularly energy transition and renewable energy generation sector over the last five or six years. And whether that's from large corporates investing on their own balance sheet, asset managers, infrastructure funds or super and pension funds, whether local or international, there has been and continues to remain significant demand for investments into Australia.

And that's underpinned by a number of key factors, including sustainability objectives of large corporates, but also those that are investing with asset managers, investment funds and even retail investors through superannuation and pension funds. Couple that with ESG objectives and Australia being traditionally a pretty stable market for investment of private capital, all bodes pretty well for a continued demand in the energy and energy transition sector.

It's really interesting to see just the weight of money sitting and waiting to be deployed on the sidelines or that are already involved.

And what challenges or headwinds are there though facing these investors in this space?

Yeah, absolutely. So I mean there is very deep pockets of capital sitting there on the sidelines, as you mentioned to be invested. However, there are continued frustrations with the Australian energy and energy transition and renewable energy generation sector and they really revolve around that, as such as frustration with the continued build out of our transmission system. Our transmission lines are still very gold plated, of course, around our coal power plants which are due to and scheduled to come offline.

But where our renewable energy generation really needs to sit is in some of those rural communities and remote areas. And really the transmission system as we're all aware needs to be gold plated around those areas. And work is being done through NSW government, Victoria government on renewable energy zones. However, the speed is not as fast as it needs to be for the continued investment into utility scale renewable energy that is at a level that provides a sustainability and investment returns that our private capital investors are looking for.

However, in saying that, you know, we are seeing some easing of some of the other challenges that private capital have faced over the last five or six years, including delays in supply chains that were experienced in COVID. They are easing, which is a positive, but we still continue to have some shortage around skilled labour here in Australia and also protracted regulatory approvals for the actual approval of these projects from a generation perspective. And electricity generation from a renewable energy investor does provide great opportunities to deploy large cheques here in Australia and that's why the demand has been very solid for private capital. However, some of these challenges are still being faced by the industry which are causing delays in projects and ultimately the delays in the deployment of this capital.

That's really interesting about the challenges, Chris. Clearly, there's sort of a confluence of different issues there. Maybe some continuing issues around timings, but certainly seems room for optimism on projects moving forward.

And so moving then to the other side of the equation. I guess you know in terms of investment opportunities, what are you seeing in that sense?

Yeah, absolutely. So to address some of those challenges we just touched on, we are seeing private capital look to diversify their investment and their investment mandates. So moving away from just solely investing into standalone generation projects that yes, they do have the opportunity to deploy a lot of capital, particularly the sizeable generation projects.

What we are seeing though is that diversification and what I mean by that is investing in portfolios of projects, projects that help smooth the intermittency of the transmission. So whether that's generation with co-located battery storage or standalone battery storage as part of a broader generation, portfolio, really looking at a broader energy mix for investment as opposed to just standalone, one off generation projects.

We're also seeing some investments into generation businesses and development businesses. So really taking a vertically integrated approach to the investment thesis by looking at, you know, investing in the development and then also bringing through the projects as part of that development to have line of sight on the ability to deploy capital, but also diversifying the risk across different portfolios.

When we're also outside the utility scale generation, we're also seeing a lot of investment and an interest in non-grid connected, well, non-grid developed projects and utility scale projects. So really focusing on behind the metre opportunities, co-located energy storage and generation facilities for large industrial users as opposed to just large utility scale projects connected to the NEM.

Well, there’s clearly a real array of investment opportunity there very much here and now. That's been tremendous Chris, thank you so much for coming along and joining us today.

My absolute pleasure. Thanks, Jon.

Well there you have it, Chris Mitchell and his insights on this key sector.

You'll be seeing more to come in future episodes of Private Capital Pulse. We'll keep you updated and more importantly, we're keen to hear from you as well. So if you have any ideas for future topics, please don't hesitate to reach out.

You can contact me jon.ireland@dlapiper.com. Contact details are also in the notes to the episode, so stay tuned. You'll be able to find us on your Spotify or Apple Podcasts account. The series is also uploaded to the DLA Piper website at dlapiper.com.

So without further ado, that's all for now. Thanks for joining us and we'll see you next time.