Australia’s renewable energy market is set to deliver value for investors

Investment in Australia’s renewable energy market offers a potential internal rate of return (IRR) ranging between 5% to 18%, a new CBRE analysis shows.

CBRE’s Renewable Energy Market Viewpoint illustrates backing from Australia’s federal and state governments, through financial incentives, has driven investment in renewable energy and resulted in strong market growth in recent years.

This momentum means investors could achieve an IRR of between 5% and 15% for solar farms, 8% to 12% for wind farms, and 12% to 18% for four-hour battery storage systems.

CBRE’s Capital Markets Manager for Energy & Infrastructure Lee Holdsworth said, “As the shift to renewable energy gains momentum, investors have increased opportunities for value. Renewable energy projects offer attractive returns and government incentives enhance viability and mitigate risk.”

Mr Holdsworth noted that the weight of capital is driving an uptick in new project starts.

“A total of 4,346 megawatts of new generation capacity was greenlighted for construction in 2024, worth over $9 billion in capital value, with an additional 88 renewable electricity generation projects, representing 13.2 gigawatts of capacity, in the pipeline,” Mr Holdsworth added.

CBRE’s Head of Alternatives Research Kate Bailey noted many new projects include solar, wind and battery storage as part of an integrated co-location offering, providing operational and cost-saving benefits.

“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,” Ms 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.