Challenges in Financing Wind and Solar Projects Amid Battery Storage Growth
This week appeared promising for the renewable energy sector in Australia, marked by a significant enhancement to the government’s flagship policy initiative, confirmation that wind, solar, and storage represent the most economical alternatives to replace ageing coal power stations, and news of an expanding array of projects alongside notable battery agreements.
However, the reality is more complex. There remains a lack of financial backing to propel new projects forward, except for large-scale battery initiatives. Attention is now focused on Tim Nelson and his panel, who are tasked with addressing the “tail risk” issues that have left banks hesitant to invest, resulting in projects remaining stalled.
Government Initiatives and Industry Reports
Energy Minister Chris Bowen commenced the week by announcing a 25% increase in the Capacity Investment Scheme, now aiming for 40 gigawatts of new capacity instead of the previous 32 GW. Following this, the CSIRO released its latest GenCost report, highlighting the substantial cost benefits of integrating wind, solar, and storage to decarbonise the national grid.
The Australian Energy Market Operator reported unprecedented levels of project commissioning, connections, and pipelines, while NSW Energy Minister Penny Sharpe unveiled a new tender for 500 MW of firming capacity. In a significant development, AGL, Australia’s largest coal generator, announced it had reached financial closure on its largest battery project to date, a 2,000 MWh facility to be constructed adjacent to the Tomago aluminium smelter.
Reality Check at the Clean Energy Summit
Despite these advancements, the mood at the Australian Clean Energy Summit (ACES) in Sydney was tempered by BloombergNEF’s Leonard Quong, who highlighted the stark reality that securing financing for new projects is becoming increasingly challenging. “I don’t like giving depressing presentations,” Quong remarked, as he outlined the significant hurdles facing the green energy sector, which, despite an expected $2.8 trillion in new investments in 2024, is grappling with global supply chain issues and the adverse effects of the previous US administration’s climate policies and tariffs on China.
A particularly disheartening statistic for Australia was presented: a graph showing that in the first half of 2025, there were no financial closures for wind projects and minimal progress for solar projects.
Factors Contributing to Financing Challenges
Within the discussions at ACES, several reasons for this financing stagnation were proposed. Delays in grid infrastructure and new transmission projects were frequently mentioned, alongside the uncertainty surrounding auction results affecting grid access in NSW, and the resistance to green energy initiatives from the new state LNP government in Queensland.
Moreover, there is scepticism in Victoria regarding the planned closure of the Yallourn power station in 2028. If new investments in large-scale green energy do not materialise, this could become a self-fulfilling prophecy.
Although the Capacity Investment Scheme has provided underwriting agreements to 19 new wind and solar projects, only one has commenced construction. Analysts suggest that many of these projects failed to secure off-take agreements while awaiting the CIS outcomes, making it difficult to secure contracts now that market conditions have shifted and corporate buyers have become scarce.
Market Dynamics and Future Prospects
Currently, only Rio Tinto appears keen to enter contracts for new wind and solar projects, driven by its need to expand capacity for its extensive smelters and refineries. While the CIS underwriting agreement offers a foundation, it seems insufficient to overcome the financing barriers.
Alan Rai from Core Markets provided insights into the issue, revealing that the contracts available are priced below the actual costs of the technology. He presented a graph indicating that the current levelised cost of electricity (LCOE) for both solar and wind exceeds the prices of off-take agreements being offered, creating a significant gap that prevents projects from moving forward.
“The disparity is particularly pronounced with solar, where market pricing is lower, and off-take agreements are below project break-even points,” Rai explained during his presentation at ACES. “This is also true for wind in Victoria and South Australia.”
Battery storage, however, presents a more favourable scenario, with off-take agreements remaining viable, especially in NSW and Queensland. The integration of these technologies is likely to be key in finding a solution, as virtually all new solar projects now include battery storage, and wind developers are following suit.
Grid Infrastructure and Investment Trends
Quong further elaborated on the challenges posed by power grids, citing delays and cost overruns. “This is not solely an Australian issue; we are tracking over one terawatt of wind and solar assets globally that are stuck in interconnector queues awaiting grid connection approval, with Australia appearing particularly vulnerable,” he noted.
“While our vast land offers an advantage in terms of high-quality wind and solar resources, the challenges posed by distance in this high-cost environment remain significant. We must continue to develop the necessary grid infrastructure to ensure that supply from these new clean sources can meet demand.”
Given these challenges, it is perhaps unsurprising that investment in new large-scale renewable assets in Australia is declining, albeit not drastically, remaining slightly above the lowest levels seen over the past six years and certainly not on track to meet the nation’s decarbonisation targets.
Looking Ahead
So, what might be the way forward? Rai suggests that the market is eager for a clear commitment from Victoria regarding the non-extension of Yallourn. While the federal government is expanding the CIS capacity, additional support may be necessary to stimulate investment.
The upcoming initial findings of the Nelson Review, expected shortly, could provide crucial insights and establish a long-term price signal for the market.
