S&P/ASX 200 Index (ASX: XJO) energy shares look to be missing out on some potentially game-changing funding.
ASX 200 energy shares, including AGL Energy Limited (ASX: AGL) and Origin Energy Ltd (ASX: ORG), alongside smaller energy shares outside the ASX 200 like Genex Power Ltd (ASX: GNX), are all working to transition toward cleaner and eventually wholly renewable energy sources.
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Net zero by 2050 comes with a hefty price tag
According to Sohel Azad, an Islamic finance expert at Deakin Business School:
Public pressure to develop large-scale, high-cost, renewable energy infrastructure is huge. Australia has a bold plan to transform its energy market. Prime Minister Anthony Albanese plans to legislate ambitious carbon reduction targets, including net-zero by 2050, and the need to strengthen energy generation capabilities has only been exacerbated by the current gas crisis.
But the costs of developing renewable energy infrastructure on a national level can be prohibitive. Which is why Azad points to the as yet untapped potential of additional international funding sources to help Australia go green.
ASX 200 energy shares missing out on 'massive untapped demand'
According to Azad, sharia-compliant Islamic bonds would likely see strong demand to support green energy projects in Australia, like large-scale battery grid storage.
The bonds, called sukuk, don't pay interest to their holders. Instead, they're classified as securities, backed by tangible assets which enable investors to garner a share of the profits (or losses) when the assets are sold or traded.
Azad says that selling sukuk on the ASX could offer investment certainty for the energy transition.
Sukuk can only be used on ethical investments, "a natural fit for funding green energy projects".
"Sukuk has already been introduced in many international markets and Australia must be quick to take advantage of the opportunities," he said.
And the opportunity appears vast, with Deakin estimating Islamic finance is almost a $3 trillion global industry.
Which could open the door to some hefty funding for ASX 200 energy shares' green projects.
"We simply don't have the public or private funds in Australia to deliver some of these ambitious projects," Azad said. "By selling sukuk on the ASX, and cross listing in other exchanges overseas, the government and corporates can attract more foreign investment in renewable energy projects."
Azad added:
There is a massive untapped demand from Islamic investors for sustainable investment opportunities like this that are sharia compliant, and Islamic finance firms are particularly interested in investing in projects that address the United Nation's Sustainable Development Goals.
