Introduction

The re-election of the Albanese Government in May 2025 provided much-needed policy certainty for renewable energy investment in Australia. Post election, the authors are seeing a lift in investment in the renewable energy market in an effort to meet Australia’s legislated target of zero emissions by 2050. As the market matures, portfolio financings continue to be widely adopted as a means of funding operational and development assets, whilst M&A activity has been dominated by portfolio-wide or platform sales caused by difficulties in obtaining development funding. Significant investment has been made in energy storage systems, which are playing a critical role in Australia’s energy transition, and the industry is grappling with the issues raised by the growth of generative artificial intelligence (AI) and the demand for electricity to supply the data centre market. Finally, the market for green hydrogen and ammonia has contracted sharply, both in Australia and globally, in response to challenging project and market economics.

Government Policies – Commitment to Renewables

The May 2025 federal election saw the Australian Labor Party (lead by Anthony Albanese) win the election in a landslide, with Australia’s energy policy being a critical divide between the major political parties. Labor’s climate policies include supporting the delivery of renewables and storage development to achieve an 82% renewable energy target for the Australian National Electricity Market by 2030. Labor’s win marked a pivotal moment for Australia’s energy transition and climate policy and is expected to result in stability and growth for Australia’s renewable energy sector as a result of improved investor confidence.

The Australian federal government’s commitment to renewables is backed by government mechanisms such as the Capacity Investment Scheme (CIS), which is a government initiative that aims to encourage new investment in generation and dispatchable renewable energy and storage projects by providing successful projects with a form of government-underwritten revenue contract. The CIS runs tenders in Australia’s two largest electricity markets – the National Electricity Market (which covers the east coast and South Australia), and Western Australia’s Wholesale Electricity Market. In 2025, the Australian federal government simplified the CIS tender process and expanded the CIS from 32 GW to 40 GW, comprising 23 GW of renewable generation capacity (a further 3 GW, in addition to the existing 23 GW) and 14 GW of clean dispatchable electricity (a further 5 GW, in addition to the existing 9 GW). To date, the CIS has been instrumental in driving investment, and each of the past tender rounds has been oversubscribed, reflecting significant private sector investment appetite.

In addition to the CIS, the Australian federal and state-level governments provide funding for renewables and related grid transmission projects. The Clean Energy Finance Corporation (CEFC), an Australian government-owned financial institution that provides asset finance programmes for the clean energy sector, committed a record AUD4.7 billion for the 12 months to 30 June 2025, including a record AUD3.5 billion to renewable energy projects and grid infrastructure (which was reportedly 2.5 times more than its financial commitments over the previous 12-month period). In early 2025, the Australian federal government increased CEFC’s capital allocation by AUD2.5 billion to AUD32.5 billion, which is expected to unlock an additional AUD8 billion of investment.

The CEFC is also the financing arm of the Australian federal government’s AUD20 billion “Rewiring the Nation” programme. This programme has been established to support the transmission infrastructure required for more renewable energy projects in line with the 2024 Integrated System Plan (2024 ISP) of the Australian Energy Market Operator (AEMO). The 2024 ISP forecasts that an estimated 4,581 km of new transmission lines are needed in Australia to meet its 2030 renewable energy targets. Under the Rewiring the Nation programme, the CEFC provides finance at concessional rates in respect of such transmission projects.

At the state government level, in July 2025, the New South Wales state government launched the NSW Energy Security Corporation to “accelerate investment in large-scale storage and enabling infrastructure”, and help New South Wales meet its state-specific greenhouse gas emissions targets. The ESC will have an initial capital allocation of AUD1 billion.

Portfolio Financings

With the continued maturation of the Australian renewables market, the trend of financing multiple renewables projects under a single consolidated portfolio financing platform has continued in 2025, including to support the platform sales discussed below.

Portfolio financings involve sponsors aggregating their projects into a corporate-style portfolio financing, for the purposes of refinancing their individual single-asset project financings and leveraging their existing operating assets to fund new projects in their development pipeline. The pool of projects included in portfolio financings has increasingly included projects that have not yet reached completion. Examples of portfolio financings that achieved financial close in Australia in the previous 12 months include the AUD2.3 billion Global Power Generation portfolio financing, the AUD1.2 billion FRV Australia portfolio financing, the AUD750 million ACEN Australia portfolio financing, the AUD700 million Foresight Australian Renewables Income Fund portfolio financing and the AUD460 million Metlen solar portfolio refinancing.

Portfolio financings have many advantages for sponsors (compared with financing projects on an individual project financing basis). Advantages include access to greater debt sizing (and freeing up much needed capital to fund further development projects), better debt pricing and increased flexibility of terms. Leveraging diversification of the portfolio in geographical, technological, certainty of revenue (including contracted versus merchant revenue) and offtaker concentration terms is particularly important for variable renewable energy sources, where both inputs and curtailment risk can be volatile. Spreading risks across multiple projects in a portfolio reduces the impact of an individual project that underperforms. Cashflow aggregation across assets supports the repayment of debt and provides greater flexibility for additional debt to be incurred within the portfolio financing platform to fund new projects.

Influx in Platform Sales

M&A activity in the renewable energy industry has highlighted two key trends: the consolidation of the market and the sale of individual renewable energy assets on a portfolio-wide basis, or as a “platform”.

This M&A activity is being driven by rising project development costs and difficulties in obtaining financing for development expenditure. Banks are unwilling to lend for devex funding, meaning that many smaller developers with early-stage projects lack the funding required to develop the projects through to financial close. This issue has been exacerbated by the challenges in obtaining connection to the grid caused by gaps in transmission infrastructure and lack of capacity, delays in planning and obtaining approval and supply chain constraints, all of which have raised the cost and risk of developing renewable energy projects in Australia.

Consequently, developers are looking to effect a merger with funds or other entities with ready access to development funding, and a significant proportion of developers in the market are offering to sell their entire portfolio to realise value created to date or recoup costs.

Current platforms available for sale include Edify Energy’s AUD3 billion pipeline of 11.2 GW of battery energy storage system (BESS) and solar projects, and onshore wind farm developer WestWind, after Shell announced plans to join a sale process by the existing shareholders of Westwind and divest its 49% share only three years after acquiring the interest. Recent announcements also include the acquisition by TagEnergy of early-stage Australian developer ACE Power, including a portfolio of approximately 6 GW of battery, wind and solar projects and the acquisition by Potentia Energy of CVC DIF’s 1-GW-plus portfolio of renewable energy projects.

The influx of available portfolio or platform assets is favourable for investment funds looking to achieve greater scale and market presence in a single deal but has required sellers to adjust price expectations and, in some cases, delay proposed sale processes due to a lack of willing buyers in the market.

Data Centres Driving Demand for Energy

Australia now houses more than 262 data centres, with digital growth, sovereignty and security of data needs and AI serving to bolster further demand for Australian data centres. Morgan Stanley estimates suggest that data centre capacity in Australia could more than double by 2030 to around 3,100 MW. In June 2025, Amazon announced that it intends to invest AUD20 billion over the next five years to further develop and expand its data centres in Sydney and Melbourne, to strengthen Australia’s cloud and AI capabilities.

The expansion of data centre infrastructure in Australia is expected to further drive investment in renewables projects to deliver the electricity required by data centres. With Australia’s abundant land and renewable energy resources, Australia is in a key position to support the growth of data centre infrastructure. Data centres, which consumed around 5% of Australia’s electricity in 2024, are forecast to consume 8–20% of Australia’s electricity by 2030.

Regulatory pressures incentivise data centres to use renewable energy. Under new rules that commenced in Australia on 1 July 2025, only data centres with five-star NABERS ratings will be permitted to host federal workloads. Additionally, as the scale and density of data centres increase, more data centres are likely to constitute “liable entities” under the Renewable Energy (Electricity) Act 2000 (Cth), and consequently will be obliged to buy and surrender renewable energy certificates to the government.

Social pressure and voluntary corporate sustainability pledges are also driving demand for renewable power purchase agreements (PPAs), offsets and green products available in the Australian market. As an example, in 2024, Amazon was the third-largest corporate purchaser of renewable energy in Australia. To support its investment in Australian data centres, Amazon is investing in three new solar farms in Victoria and Queensland to be delivered by European Energy (in addition to the eight other Australian solar and wind projects that Amazon has invested in to date). Other major operators like Google, Microsoft and Oracle have pledged to use 100% renewable energy in the near future.

Data centres are also driving demand for co-located renewables developments. Co-location allows data centre operators to better service their own energy needs and emissions targets. Supplying electricity directly to a data centre behind the meter benefits the investors in the co-located renewable energy project because this can mitigate curtailment risk (data centres have a predictable energy load and consume excess electricity during high-generation windows where Australian variable renewable energy generators have experienced negative pricing or curtailment), thereby increasing the profitably of the project and in turn supporting its bankability. Curtailment of solar projects in Australia has become a serious issue, with AEMO identifying some solar farms seeing curtailment rates above 25% in 2024, and with projects generating in the middle of the day encountering substantial congestion. Another consideration is that co-located projects may have greater prospects of obtaining highly sought-after access rights in Australia’s renewable energy zones. This is because generation projects that service co-located data centres arguably have lower transmission access requirements, holding generation capacity equal, thereby enabling greater generation capacity to be built within the renewable energy zones without needing to upgrade transmission infrastructure.

Battery Energy Storage Systems

Energy storage projects, particularly BESS, have continued to play a significant role in the Australian market, supplementing and supporting the intermittent nature of renewable power generation. Figures released by the Australian Clean Energy Council demonstrated that the first quarter of 2025 was the second best on record for investment in large-scale BESS in Australia, with six projects worth an aggregate of AUD2.4 billion reaching the financial commitment stage (representing 1.5 GW in storage capacity and 5 GWh in energy output). By way of example, large-scale BESS projects that recently achieved financial close include the 250-MW/500-MWhr Gnarwarre BESS project located in Victoria (FRV Australia’s largest BESS project to date), the 100-MW/400-MWhr Merredin BESS project located in Western Australia (Atmos Renewables’ first BESS project), the 300-MW/600-MWh Wellington BESS located in New South Wales (Ampyr Australia’s first BESS project) and EnergyAustralia’s 350-MW/1,400-MWh Wooreen BESS project, which will be co-located in the Jeeralang power station in the Latrobe Valley in Victoria.

The growth in storage projects (including ones co-located with other renewables technologies such as onshore wind and solar) is indicative of several shifts in the market for energy projects. Technological advancements in BESS and a rapid decline in battery prices mean that enhanced BESS solutions now offer longer durations and higher efficiency. The relative simplicity of chemical BESS projects – ie, the modular design, small footprint, location (often on sites with appropriate pre-existing zoning like industrial and energy), shorter construction times and ability to provide firming and grid stability services – means that they are faster to develop than other renewable energy technologies. From an investment perspective, reduced costs of BESS technology and speed of development paired with volatility in energy prices have seen investors shift their efforts to large-scale BESS projects.

Short-duration storage assets were considered the most attractive renewable energy asset classes for investment in the 2023 and 2024 editions of Infrastructure Partnerships Australia’s annual Australian Infrastructure Investment Monitor, with preliminary results from the 2025 survey indicating a continuation of this result.

A diverse range of offtake structures have also developed to support the commercialisation of large-scale BESS projects, including virtual tolling agreements. Virtual tolling agreements (also called “swaps”) are prevalent in the Australian and US markets with minimal or no performance obligations, making them favoured among large corporate purchasers with renewable credit offset portfolios.

With a virtual tolling agreement, a developer may reserve BESS capacity as a virtual asset for an offtaker. This arrangement involves the developer retaining operational control of the battery whilst the offtaker has the right to provide charge and discharge nominations, which are settled on the basis of a model that runs the relevant nominations. The contract will usually take the form of a contract for difference, where the offtaker pays a fixed charge to the developer and receives variable energy arbitrage payments based on the actual energy prices. This provides a mechanism for developers to manage financial risks by securing stable revenue through tolling fees whilst mitigating market volatility.

Examples of innovative contracting structures include the following.

• Neoen’s first-of-its-kind virtual tolling agreement with AGL Energy for its 100 MW Capital Battery and, more recently, in relation to its 200 MW Western Downs BESS. The virtual offtake agreements allow AGL to replicate the services of a grid-scale BESS and provide flexibility within its firming portfolio, without AGL being required to build or own a physical asset. The unique structure enables AGL to deliver 70 MW of virtual battery capacity to New South Wales from a battery that is located in Canberra.
• ENGIE’s virtual battery agreement, which provides for financial trading of a virtual two-hour BESS that is backed by AGL’s portfolio of batteries across New South Wales, rather than being tied to any one specific asset.

Waning Enthusiasm for Green Hydrogen

Initial optimism positioned green hydrogen as a cornerstone of the energy transition for many economies, including Australia. Government policies and financial incentives were introduced to expand hydrogen technology in Australia, including the Australian government’s National Hydrogen Strategy in 2023 and the AUD2 billion Hydrogen Headstart initiative, which formed part of the 2023–24 federal budget. These efforts were geared towards scaling up green hydrogen projects by funding feasibility studies, large-scale electrolyser deployment, and demonstration projects in transport and industrial processes. Despite these initiatives, the reality of developing green hydrogen and ammonia projects has proven far more difficult for industry players.

The Australian Energy Council reported in October 2024 that the country’s ambitious hydrogen plans face numerous setbacks, primarily due to high production costs, infrastructure bottlenecks, uncertain market demand, and regulatory challenges.

High production costs remain a critical barrier to the commercial viability of green hydrogen in Australia. The Australian Energy Council notes that the cost of producing green hydrogen currently ranges between AUD5 and AUD6 per kilogram, which is significantly higher than the target of below AUD2 per kilogram needed for commercial competitiveness. This is attributed to high electrolyser costs and the lack of economies of scale in the emerging industry. While Australia’s abundant solar and wind resources have the potential to reduce these costs, the current economic landscape for hydrogen production presents a formidable challenge.

Infrastructure development is another significant hurdle. New green hydrogen projects often face “project-on-project” risk, as developers are required to develop infrastructure for electricity generation, electrolysis, transport, storage and offtake. The complex nature of the infrastructure makes it difficult to mitigate and finance these interdependent risks. Transporting and storing hydrogen for industry usage requires substantial infrastructure investment, which has progressed slower than anticipated, hampered by a lack of clear regulation and safety standards for hydrogen storage and transportation. Hydrogen’s highly reactive and flammable nature necessitates either retrofitting existing pipelines or constructing new ones, both of which are costly and complex. Additionally, the limited number of hydrogen refuelling stations for vehicles and equipment further hampers the sector’s growth.

Market demand for hydrogen also remains uncertain, despite interest from countries like Japan, South Korea and Germany. Competition from other hydrogen-producing nations such as Chile and Saudi Arabia complicates Australia’s export opportunities in circumstances where current domestic demand is estimated at less than 1% of national energy consumption. Perhaps unsurprisingly, global markets appear unwilling to pay premium prices for green hydrogen as a fuel source given the availability of electrification via cheaper, locally sourced renewables and BESS. Compounding the demand-side issues is the lack of a stable, transparent market price for green hydrogen, in Australia or overseas, which is a fundamental hurdle to the bankability of hydrogen projects.

As a result of these challenges, the number of large-scale hydrogen projects reaching financing close remains limited, and many industry players have announced that they are stepping back from previously announced flagship hydrogen programmes. Australian examples include the following:

• the AUD14 billion Central Queensland Hydrogen Project was cancelled in June 2025 after the Queensland state government-owned energy company, Stanwell, withdrew its support for the development, which also included Marubeni Corp and Keppel, following the earlier withdrawal of Kansai Electric Power in November 2024 and Iwatani Corporation in March 2025; and
• Fortescue Future Industries recently abandoned its green hydrogen ventures in Australia, including the cancellation of its PEM50 green hydrogen project in Gladstone Queensland, citing global energy price increases driven by the conflicts in Ukraine and the Middle East, along with unforeseen infrastructure development delays and high costs.