Australia’s renewable energy market offers attractive returns according to a new report from CBRE. Its capital markets manager for energy and infrastructure Lee Holdsworth notes some very competitive offerings by way of internal rates of return (IRR).
Solar farms for instance offer IRR of between 5 per cent and 15 per cent, wind farms between 8 per cent to 12 per cent and batteries a staggering 12 per cent to 18 per cent.
Holdsworth pointed to government backing (now full steam ahead if you look at the recent federal election) and the ever hungry “weight of capital” as key drivers for the interest.
In 2024, 4346 megawatts of new generation capacity had been greenlighted for construction in 2024, worth over $9 billion in capital value, and another 88 renewable electricity generation projects were in the pipeline.
But what’s this to do with CBRE’s traditional patch in real estate?
A lot, according to Kate Bailey who is head of alternatives research.
Most of these investments were part of an “integrated co-location offering” that provided operational and cost-saving benefits, she said.
“Leveraging battery storage as part of solar and wind projects can reduce lag time, deliver cost savings, and provide the ability to store excess electricity during peak hours. Batteries can potentially generate higher returns by charging during off-peak times and distributing energy during high-demand periods,” Bailey said.
The report notes the renewable market requires different considerations to the traditional real estate market, including:
- Planning for the long-term as project development cycles can be lengthy, taking up to nine years
- Understanding the evolving regulatory environment to ensure profitability
- Allowing for the cost of technology advancements
- Diversification of investment
- Understanding sell-back pricing for wind, solar and battery.