Renewable energy stocks are looking down the barrel of some lean years as investment in large scale projects dries up — and not just because of the Turnbull government’s proposed National Energy Guarantee (NEG) policy.

Energy executives spoken to by Stockhead say flat energy demand in coming years and a huge volume of new capacity will dampen wholesale power prices, while a lack of incentives in the NEG will hurt the economic rationale for new investment.

“The NEG does nothing for those [large scale] projects and those businesses,” says Mike Ottaviano, chief of ASX-listed renewable sock Carnegie Clean Energy. “That is because the emission reduction targets built in [to the NEG] will largely have been achieved.” 

Australia is on track to meet the Turnbull government’s proposed emissions reduction target of 26 per cent by 2020-21, thanks to enormous investment in large scale projects since 2016.

>> Scroll down for a table of renewable energy and storage small and mid caps

We had 5.3 gigawatts (GW) of large scale solar and wind energy installed by the end of 2017 and 5.2GW was under construction, according to the Clean Energy Regulator. To put that in context, Australia had a total 49.9GW of installed power capacity at the end of July.

Meanwhile, although it might sound counter-intuitive, electricity consumption is expected to remain flat for the next 20 years, the energy market operator forecasts. (Only the expected ramp-up of electric cars towards the end of the period is expected to push up consumption.)

Without demand growth the only reason to build new capacity is the retirement of existing coal plants over the 2020s, Mr Ottaviano said.

What does that mean for investors in ASX-listed renewables?

Baseload-like companies like Genex (ASX:GNX), off-grid businesses such as Carnegie Clean Energy (ASX:CCE), Redflow (ASX:RFX) and Tag Pacific (ASX:TAG) and experimental tech like Petratherm (ASX:PTR) are likely to ride out the lean years.

But companies that may be exposed to any shortage of investment include Tilt Renewables (ASX:TLT), Infigen (ASX:IFN), ReNu Energy (ASX:RNE), Pacific Energy (ASX:PEA) and Windlab (ASX:WND).

The NEG’s renewable energy target “gave a reason to build out new generation and that’s now largely satisfied,” says Mr Ottaviano.

“The NEG… will not drive any further [renewables projects] but also won’t drive further fossil fuel investment.

“In an attempt to offend no one, it will please no one, other than the existing big emitters.”

Investment support for new projects is likely to come from State renewable energy schemes and power purchase agreements with corporations trying to bring down their energy bills, says Tilt Renewables chief executive Deion Campbell.

For example, Victoria’s Renewable Energy Auction Scheme will support 3.4GW of projects. The auction closed in February but the winners are yet to be announced.

Corporate agreements already account for over 2650 megawatts (MW) of energy projects since 2016, according to consultancy Energetics.

Yep, prices are coming down

A huge volume of extra capacity is expected to cause renewable energy certificate prices to plunge in the next few years as well as push down wholesale power prices.

Green Energy Markets director Tristan Edis expects investment to dry up on the back of low wholesale prices and no incentive from the NEG to invest in cleaner technologies.

He says Genex is reasonably protected from the upcoming drought in wholesale prices because it will be able to use its pumped hydro system to deliver energy at times wind or solar energy can’t, and it’s backed by a $516 million government loan.

But companies like Tilt and Infigen, which have sat on sites while waiting for a certain return, could struggle as other companies catch up by getting taller or newer windmills approved for less ideal locations.

Renewable stocks

The last 12 months have been a challenge for renewable energy and storage stocks, as our table below shows.

High tech pre-revenue geothermal trier Petratherm has done the best, with a 67 per cent gain, followed by Tag Pacific which was the happy recipient of Carnegie’s solar and battery business.

Protean Energy (ASX:POW) is still in the process of developing is South Korean vanadium and uranium mine but has started testing a vanadium redox flow battery — the current darling of battery technology.

Genex is also above water as it launched the first phase of its Kidston project late last year.

ASX code Company 12-month price change 6-month price change Price Aug 15 (intraday) Market Cap
EVM ENVIROMISSION (suspended) 0 0 0.1 --
NEW NEW ENERGY SOLAR (listed Dec 2017) -0.0466666666667 -0.00694444444444 1.43 468.4M
WND WINDLAB (listed Aug 2017) -0.32 -0.0810810810811 1.36 92.0M
14D 1414 DEGREES (Due to list this month) -- -- 0.35 --
PTR PETRATHERM 0.666666666667 0.666666666667 0.04 6.8M
TAG TAG PACIFIC 0.5 -0.117647058824 0.075 9.3M
POW PROTEAN ENERGY 0.45 -0.25641025641 0.029 7.6M
GNX GENEX POWER 0.142857142857 0 0.28 85.1M
RFX REDFLOW -0.0736842105263 -0.473053892216 0.088 64.1M
PEA PACIFIC ENERGY -0.0827922077922 0.0928433268859 0.565 244.5M
IFN INFIGEN ENERGY -0.267080745342 0.0260869565217 0.59 553.4M
MNS MAGNIS RESOURCES -0.3125 -0.164556962025 0.33 189.0M
RNE RENU ENERGY -0.3125 -0.3125 0.011 11.6M
NVX NOVONIX -0.512711864407 -0.21768707483 0.575 66.5M
CCE CARNEGIE CLEAN -0.591836734694 -0.52380952381 0.02 54.7M
KPO KALINA POWER -0.602739726027 -0.395833333333 0.029 13.3M
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