- Capex in Australia’s utilities sector rose sharply in 2017/18, led by a surge in renewable energy investment.
- CBA’s Kristina Clifton says financial incentives from the government should ensure further renewables investment in the years ahead.
Australia will get an update on the business investment outlook this week, with the release of Q3 capex data on Thursday.
A key recent feature has been the steady growth of non-mining business investment, which rose by 13.5% in the 2018 financial year.
Research from CBA shows the rise has been broad-based, with capex increases in 16 out of 17 industries.
However, the utilities sector was a standout performer, driven by a surge in renewable energy investment.
“Private capital spending in the utilities sector rose by around 75% in 2017/18,” CBA’s Kristina Clifton said.
“Investment in electricity projects has driven the increase. In particular, there has been a surge in investment in the renewable energy sector.”
While the 2018 financial year marked a significant increase for the sector, Clifton said government support for further investment means it’s unlikely to be one-off in nature.
Specifically, Clifton highlighted the government’s Large Scale Renewable Energy Target — which provides financial incentives for the construction of renewable power stations.
In addition, “there is a large pipeline of work still to come, which means that investment in renewable energy is likely to remain at a high level over the next few years,” Clifton said.
Other standout industries for capital expenditure included education, accommodation & food, and media & communications. Retail was the only one of 17 industries to report a decline in capex.
Looking ahead, Clifton also noted the slowdown in residential building approvals, but said the pipeline of work in commercial building project is still “relatively high”.
“Taking into account all of the indicators, we expect that non-mining business investment will grow at a moderate pace over the next year or so,” Clifton said.