An increasingly complex global environment 13 min read
Within hours of his inauguration on 20 January 2025, President Trump signed almost 100 executive orders and issued several memorandums and announcements. These included a wind-back of the Inflation Reduction Act (the IRA), withdrawal from The Paris Agreement, halting approvals for new offshore wind farm projects, fast-tracking approval processes for fossil fuels and implementing tariffs on Canada, China and Mexico, some of which were subsequently paused.
It is early days, so there is limited evidence as to whether this will result in a meaningful change to actual investment allocations in sectors such as renewable energy, but it certainly demonstrates that the global investment environment is becoming increasingly complex, and we believe there is potential for some portion of capital to be redirected away from the US.
While a potential global reallocation of debt and equity capital and other key energy transition resources such as labour and equipment may be advantageous for a number of countries, the extent to which Australia will be able to capitalise on these opportunities will be tested by the many existing challenges that remain and need to be solved.
In this Insight, we reflect on the potential consequences of recent policy changes in the US following the re-election of the Trump administration and how this may impact the energy transition in Australia.
Key takeaways
- The winding back of the Inflation Reduction Act and other renewables policies under the new US administration may lead to a global redirection of capital away from the US to other jurisdictions, with the reallocation of key resources such as labour and materials easing global supply chain pressures in some pockets.
- Features specific to Australia's clean energy market, including our debt and equity markets, and supportive legislative environment may be attractive to certain classes of investors seeking to reallocate capital that was previously earmarked for the US.
- Similarly, certain local projects experiencing challenges with labour and materials shortages will welcome the potential redistribution and freeing up of such resources.
- However, the upcoming federal election adds uncertainty to the future direction of Australia's clean energy policy. Anti-ESG sentiment, fuelled by the renewed emphasis of this theme from the US, may have a further chilling effect on investor confidence.
- In addition to political uncertainties, Australia's energy transition continues to face domestic challenges such as approval and connection delays, skilled labour and materials shortages (which are not easily solved even if there is a global redistribution of such resources), and a slow transmission infrastructure build-out. These challenges need to be addressed to fully attract inbound capital.
- While recognising the very real ongoing local challenges, on the global stage Australia will still be viewed as an attractive investment destination for renewable energy, including relative to the US and parts of Europe. The competitive advantages that are specific to the Australian renewables sector will help Australia compete for the redirection of global capital flows.
Recent policy changes in the US
The new US administration has wasted no time in implementing executive orders with the intention of sending policy signals and directing investment in the energy industry in the US in the short to medium term. While the policy situation in the US continues to change on a daily basis, key policies and actions that are expected to directly curb investment in the renewable energy industry in the US are:
Winding back of the IRA
Trump's 'Unleashing American Energy' executive order pauses the disbursement of funds allocated under the IRA. This will have direct impacts on existing and planned energy transition projects, including Australian investment into the US in areas such as hydrogen.
While the IRA is not expected to be fully repealed given a number of projects benefiting from the IRA are in Republican states, the change in stance under the new administration certainly represents a significant shift in direction, given that—up until the commencement of the new administration—the IRA was widely promoted as the single biggest climate investment in US history, with more than US$369 billion of government spending earmarked for energy transition projects, including a vast range of renewable energy technologies. Indeed, it is estimated that as at January 2025, the IRA in its previous form had attracted nearly US$500 billion of investment in low carbon energy and domestic manufacturing, with private investment exceeding public spending by five to six fold.1
Offshore wind ban
The withdrawal by President Trump of the Offshore Continental Shelf (OCS) from wind energy leasing is anticipated to create major hurdles for the offshore wind industry in the US. The terms of the withdrawal will mean new offshore wind projects are unlikely to get off the ground, as they will not be able to get leases on the OCS. Projects with existing leases may also be at risk of review, which may result in revisions to the sizing of such leases, or even their cancellation.
Drill, baby drill
Trump's energy strategy pivots away from the clean energy initiatives under the Biden administration towards a prioritisation of oil and gas. Through a number of executive orders, President Trump has decreased regulatory roadblocks to new oil and gas projects, expanded the areas in which hydrocarbon exploration can take place, restarted approval processes for LNG export projects and initiated a renewed push for the adoption of fracking across the US mainland.
As a result, the US will immediately become a more attractive destination for oil and gas companies to deploy capital and develop new projects. This is in distinct contrast to the Australian investment landscape. Despite the change in the discourse relating to gas that we've seen over the past few years, with both the federal and various state governments now publicly calling out the role of gas as an important part of the energy transition, new projects are still facing long delays in securing approvals and opposition from community groups.
Anti-ESG investment sentiment
All of these and many other actions and policies under the new US administration have contributed to a further rise in anti-ESG investment sentiment. Globally, and in part as a possible reaction to that sentiment, we have seen major financial institutions and asset managers pulling back from public net zero and other climate-related commitments.
Australia's clean energy investment landscape
Australia's clean energy landscape is likely to be influenced by a number of global shifts arising from key US policy changes, including the global reallocation of debt and equity capital, disruption and redistribution of supply chains, key materials and labour, and a changing political environment and public sentiment.
While these shifts may, in some respects, be positive for Australian clean energy projects and investment, our energy transition continues to face significant challenges. The impact on energy policy following a possible change in federal government is significant, with uncertainty around whether a number of the key initiatives pursued over the past few years will continue. These include the Rewiring the Nation initiative, which funds the construction of new transmission infrastructure, and the offshore wind industry which is underpinned by federal legislation. Of course, there is then the issue of the Coalition's nuclear policy and how this might impact the direction of the energy market in Australia.
In addition to this sovereign risk, Australia continues to grapple with significant approval delays and transmission connection issues for energy transition projects, preventing developers from fully capitalising on the opportunity to attract capital. We will cover these issues in more detail in future Insights in this series.
Many of the orders and policies under the Trump administration are expected to:
- present significant hurdles for new projects in the US (particularly in the renewable energy sector and generation projects both onshore and offshore);
- create or exacerbate delays and challenges for certain existing US projects, some of which may be shelved or abandoned completely; and
- increase political and social complexity and scrutiny of investment policies that are explicitly linked to decarbonisation or climate-related targets.
In particular, the winding back of the IRA is expected to result in capital of up to US$80 billion being diverted away from the US.2 Should this eventuate, a huge global reallocation of capital can be expected to occur, potentially creating new opportunities for certain segments and projects in the Australian energy sector.
Emerging technologies and non-traditional revenue structures
While Australia benefits from a mature, sophisticated and liquid project finance market, for certain clean energy projects, such as those involving newer and emerging technologies or non-traditional revenue profiles (like hydrogen, batteries and other storage assets), there is often a need for support from a range of traditional and non-traditional funding sources. These can include government lender support or private debt providers who may be willing to provide greater flexibility in their terms for certain projects that are higher up the risk curve given their different investment mandates and risk appetite.
The capital expected to 'free up' as a result of a more challenging investment environment in the US will come from a wide range of sources, including commercial banks, private debt lenders and funds. With strong existing liquidity in the Australian project finance bank debt market, we see opportunities for non-traditional lenders, particularly private debt lenders who may be looking to reallocate their investment, to increase their participation in the Australian energy market, especially on projects involving emerging technologies or with non-traditional revenue profiles. We may see more of those types of lenders providing standalone funding or supplementing and sitting alongside traditional bank debt and government funding on certain clean energy projects.
This activity may be facilitated by other current features of the Australian market, such as the RBA recently starting a gradual easing cycle on interest rates, as well as industry-specific features that support new project development and funding, such as legislated emissions reduction targets, and government-led funding and revenue underwriting initiatives, at both a federal and state level, such as the Commonwealth Capacity Investment Scheme and NSW's Electricity Infrastructure Roadmap for renewable energy zones and Long Term Energy Services Agreements. It remains to be seen what effect the Australian election outcome may have on federal energy policy, and we have already seen a shift in Queensland in terms of government support for energy transition-related targets and projects.
M&A activity and expansion of energy platform investment
On the equity side, for similar reasons noted earlier, we anticipate that Australia should be viewed as a relatively attractive jurisdiction for increased investment from equity investors who may be pulling back their investment allocations in projects in the US. In the Australian context, potential increased equity interest from investors looking for scale and diversification may further drive the proliferation of energy platforms and portfolios. This is a major trend that has proven to be highly attractive and viable for sponsors in the local market across the past 12-24 months, leading to a number of platforms and portfolios becoming available in the pipeline and seeking to be connected with equity and debt capital providers. Investors with more specific asset or technology-based mandates may also look to increase their investment in sectors that have proven to be increasingly bankable, such as the utility-scale batteries sector or, depending on their investment mandate, sectors involving more emerging technologies.
The extent to which these potential opportunities will result in a net benefit for Australia will be tested by a number of existing sector challenges. These include political uncertainty and a possible pullback by certain investors from the sector generally in the context of heightened scrutiny from stakeholders around 'environmental agendas'. We have also seen a retreat by certain investors from some technologies such as utility-scale solar, and there are, of course, the pain points with permitting, connection, access and social licence affecting all projects. All of these factors lessen competition for assets, placing downward pressure on returns and presenting issues for Australia as an investment destination for capital seeking a home.
The significant hurdles, delays and other challenges for renewable energy projects in the US, combined with more general measures such as tariffs, leading to potential trade wars, are expected to significantly disrupt supply chains, key materials and labour. Looking at some of Australia's existing challenges under these themes, we anticipate that there may be upside for certain segments of the clean energy industry.
Labour and supply chain opportunities
The redistribution of resources such as labour and equipment that is no longer required for projects in the US may present opportunities for Australian projects such as solar, wind and storage, as well as facilitating the buildout of transmission infrastructure. Shortages in skilled labour and materials have been a key hurdle facing Australia's ambitious pipeline of energy development projects and transmission infrastructure buildout. Key equipment and components for energy projects are in high demand globally. Production slots for these items can be booked out years in advance and prices have continually been increasing. Program timing for these large-scale projects is critical, with delays resulting in projects losing their position in the queue for both key components and grid access, which is contributing to cost overruns and blowouts.
While there is no easy solution to existing supply chain problems, we expect that a redistribution of supply of material, transportation and labour resources away from the US may provide some assistance with overcoming these challenges.
Offshore wind sector
The sweeping actions taken by the Trump administration raise serious concerns for the offshore wind industry in the US. From a global perspective, it will mean a huge volume of such development projects may be withdrawn from the US or delayed for some time. In addition to the associated equity and debt investment that will no longer be deployed for those projects and will therefore need to be reallocated, this also means key resources such as contractors, suppliers and operators, as well as key materials, transportation and components, which were previously committed to that project pipeline, will become available globally. The freeing up of some of these resources may assist to address existing shortages in the Australian offshore industry.
This redistribution presents opportunities for Australia, in particular when we consider some of the current regulatory and policy settings already in place for our offshore wind industry. While still in its early stages, the federal and Victorian governments have been at the forefront of developing an offshore wind market in Australia, with the introduction of an offshore electricity licensing framework at a federal level and a clear policy direction from the Victorian Government outlining its offshore wind targets.
That said, the offshore wind industry in Australia is still very much in its infancy, and the progress that has been made under current Labor governments at the state level is at risk of being paused or wound back should we see a change of federal government at the upcoming election.
The substantial shift in stance that the new US administration has taken on energy policy has heightened criticism of energy investment from certain political and social voices and, relatedly, has contributed to a general anti-ESG and anti-woke narrative.
This increases the complexity of the investment environment surrounding the energy sector globally. In Australia, we see this potentially amplifying certain political and social licence challenges, but will not necessarily be a significant detractor from opportunities for the energy transition in Australia given that, as an investment destination, it remains attractive relative to other parts of the world.
Emboldening political and community challengers
We expect to see key planning and environment approvals required under federal and state legislation remaining a challenge for developers, both in terms of delays in securing those approvals and increasingly stringent assessment requirements and conditions once those approvals have been obtained.
This may be exacerbated depending on the outcome of the upcoming federal election this year. The Coalition has taken a considerably stronger stance against renewables generally, and this may be further fuelled by the renewed emphasis on anti-ESG investing and anti-woke sentiment from the US. For example, we have seen the federal opposition's recent announcement of its intention to revoke the Southern Ocean Offshore Wind Zone if elected, criticism from federal opposition leader, Peter Dutton, of 'woke' bankers who refuse lending to certain sectors on environmental grounds and a promise that, if elected, the opposition would unwind emissions reporting rules that came into effect on 1 January.
Similarly, we may see community opposition and social licence challengers emboldened by that anti-ESG and anti-woke narrative. In the context of the build-out of generation and transmission projects, this may result in even more protracted stakeholder consultation and negotiations with underlying tenure owners, as well as legal challenges to approved and operating projects.
Green lending and investment policies
There is increased complexity and uncertainty around ESG investment and, as part of that, renewable energy investment. As discussed earlier, the political climate in the US has contributed to this and that climate is potentially emboldening certain local political players to more explicitly support policies that curb renewables investment. It may be that we see Australian businesses feeling pressure to follow what we have seen globally in terms of businesses withdrawing or distancing themselves from explicit climate-related commitments. However, we see limited evidence and rationale that this alone will drive a substantive diversion of capital away from the renewables sector, especially where the investment case for projects is commercially and scientifically compelling.
Further, while we have seen certain anti-woke and anti-ESG sentiment echoed in Australia and specifically in the renewable sector, this has not been at the same level of intensity as in the US and so, from that perspective, it is another consideration for investors who are seeking to redeploy capital that was previously committed to US renewables projects, when assessing Australia as a relatively appealing destination.
That said, shifts in sentiment against ESG agendas will certainly add to the already growing scrutiny from corporate, political and community stakeholders, and this may become more pronounced should there be a change of government at the next election. Against this backdrop, to ensure the Australian renewables sector can capitalise on the potential opportunities presented by the global reallocation of capital and resources, it has never been more important to demonstrate a compelling investment case to equity and debt investors. Crucially, this will involve continued work to overcome the many industry, community and project-level hurdles in the sector.
Looking to the future
Despite these local challenges, there remain many reasons why Australia should still be viewed as an attractive investment destination for renewable energy. The advantages Australia has in terms of its stable legal and political system (including bipartisan support for 2050 net zero targets and significant government support for industry at both state and federal level) and its vast, high quality renewable energy sources will continue to bolster Australia's ability to compete for global capital flows.
Footnotes
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Ryan Kennedy, "US state attorneys general urge Congress to keep IRA clean energy credits" PV Magazine, 21 January 2025.
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Bentley Allan, Tim Sahay, "Trump's proposed clean energy retreat: US costs and global rewards" Net Zero Industrial Policy Lab, 6 November 2024.