Investors warn Australia’s energy transition faces a growing confidence crisis

Australia’s clean energy transition continues to attract serious capital, but investors and industry leaders say policy instability, infrastructure bottlenecks and emerging social license risks are still threatening long-term investment confidence following the 2026–27 Federal Budget.

The Budget included measures intended to accelerate environmental approvals, alongside broader tax reforms that have sparked concern across parts of the renewable energy sector.

At the same time, the market is continuing to shift rapidly toward battery storage, while pressure grows on transmission networks and regional infrastructure planning.

Speaking to Energy Insights, industry experts outlined the biggest risks and opportunities for Australia’s transition economy.

Tax uncertainty rattles investor confidence

Richie Merzian, CEO of the Clean Energy Investor Group, told Energy Insights the Federal Budget’s proposed capital gains tax changes for foreign investors risk undermining Australia’s reputation as a stable destination for infrastructure capital.

Merzian warned that foreign capital has historically funded around 70% of Australian utility-scale renewable investment, making investor certainty critical to future development pipelines.

“The mere prospect of retrospectivity has already caused international investors to discuss pricing sovereign risk into Australian projects,” Merzian said.

The concern centres around proposed changes to the foreign resident capital gains tax regime, including retrospective clarification measures dating back to 2006. Industry groups argue the reforms could increase uncertainty for international investors at a time when Australia is heavily reliant on offshore capital to fund renewable energy and transmission infrastructure.

Merzian said investors had spent years viewing Australia as a predictable, rules-based market for long-term infrastructure investment.

“Retrospective tax change stretching back decades undermines that reputation and shows investors the rules can change after they have committed capital in good faith,” he said. “Any tax changes should be prospective, honour past rules with grandfathering, and offer a transition period that aligns with long-term investments in clean energy and the net zero transition.”

Dan Cass, Advisory Board Member at The Energy, Research Affiliate at the Sydney Environment Institute, Mentor at EnergyLab and Advisor to Rewiring Australia, argued that broader political instability remains the larger risk to transition investment.

“The biggest global risk is economic instability and inflation. The biggest Australian risk to investment in the energy transition would be the election of a conservative coalition Government,” he said.

This “would not just derail large scale renewable energy and storage investment, but would impact transmission investment, by riling up communities with disinformation and pressuring the market bodies to stymie the ISP.”

Approval reform welcomed, but gaps remain

Despite concerns around tax settings, both Cass and Merzian acknowledged that parts of the Budget were viewed positively by the sector, particularly funding aimed at environmental approval reform.

The Federal Budget allocated more than $500 million toward implementing reforms to the Environment Protection and Biodiversity Conservation Act approval system and bilateral assessment agreements designed to reduce duplication between state and federal processes.

Cass said investors would welcome efforts to speed up planning approvals and unblock delayed projects.

However, he argued the Budget still failed to adequately address key transition infrastructure gaps, particularly around freight decarbonisation.

“A key gap in this budget was the lack of a credible heavy vehicle electrification [plan],” he said.

“Regional economies and food consumers would benefit enormously from a network of e-truck chargers and an ambitious plan to deliver freight security by transitioning the truck fleet off diesel.”

Merzian similarly said the environmental reforms could improve project assessments and reduce delays, but maintained that the broader impact of the Budget on investor sentiment had ultimately been negative because of the proposed CGT changes.

“The 2026-27 Budget contained some positive notes for clean energy investors, but the overall effect on investor confidence is not positive with CGT changes overshadowing any wins for the sector,” he said.

“On the positive side, there was over $500 million allocated to implement the reforms to the EPBC, as well as the new bilateral agreements, slated to hasten approvals and minimise double handling between the states and the feds. The Clean Energy Investor Group (CEIG) and its members have long called for reform to the environmental approval process, and this budget commitment should help lead to smoother assessments.”

Batteries surge while transmission remains a bottleneck

Looking ahead, Merzian said battery energy storage systems (BESS) are currently attracting the strongest investment momentum across both the National Electricity Market (NEM) and Western Australia’s South West Interconnected System (SWIS).

“Big batteries are currently the market favourite, with projects moving at pace across both the East and West coast grids,” he said. “This is showing with new records being set for its contribution to electricity supply across both markets in recent weeks.”

However, he warned uncertainty remains around whether battery storage projects will qualify under transitional CGT discount arrangements for renewable energy assets.

“The Government needs to ensure this is clarified to avoid a halt to these necessary projects.”

Merzian also predicted stalled wind development could rebound as environmental reforms, planning streamlining and Electricity Services Entry Mechanism (ESEM) reforms begin to take effect over the next year.

At the same time transmission infrastructure remains one of the sector’s biggest unresolved pressure points, he said.

“Priority transmission investments including the SA-NSW expansion, VIC-SA augmentation, Marinus Link and the Pilbara-NWIS backbone should be accelerated,” Merzian said.

“These projects are foundational to unlocking the next wave of generation and industrial decarbonisation and without accelerated transmission investment, clean electrons cannot be efficiently delivered to load centres.”

Social tensions around data centre development

Cass agreed that grid and Renewable Energy Zone constraints will continue to create investment friction, but also pointed to another issue: regional data centres driven by AI growth.

He warned that social licence tensions around large-scale data centre developments are beginning to resemble earlier anti-wind campaigns that slowed renewable development in parts of Australia.

“Regardless of how well the tech sector now gets its house in order around social licence, the big issue to watch will be 50-200 MW regional DC projects,” he said.

“If federal funds help state planners integrate energy and DC planning holistically, we could see projects springing up around the regions and supporting grid security and improving renewables utilisation in REZs.”

For investors, the message from the sector appears increasingly clear: capital for the transition still exists, but confidence will depend on whether Australia can provide stable policy settings, faster infrastructure delivery and stronger coordination between energy, transmission and industrial planning.