Following his participation in the Reuters webcast, ‘Financing the Age of Transition’ Joost Bergsma, CEO, muses on how clean energy investments are likely to fare in the face of the Covid-19 crisis and on the impact of the crisis on the energy transition in general.
On Tuesday 14 April, I had the pleasure of taking part in a Reuters podcast on Financing the Energy Transition, speaking alongside Olivier Warnan from BNP Paribas and Stuart Broadley from the Energy Industries Council (EIC). The discussion looked at how we are going to fund the necessary investment in decarbonisation to meet our climate targets, and the opportunities for investment during this transition.
Despite the uncertainty created by Covid-19, we remain confident that the energy transition can sustain its current trajectory. On the investment side, the key economic drivers and political pressure for greater clean energy have not gone away. Importantly, the costs of clean energy have decreased in recent years, in part due to the falling costs of enablers, such as storage, new technology or interconnecting capabilities. There is also significant pressure for companies and Governments to allocate sufficient resources to decarbonise their operations.
It is worth adding that the pressure for countries to become energy independent has also increased, in particular in light of the recent shocks to the oil market. Green energy will continue to provide a secure economic alternative for nations who are looking to end their dependence on foreign oil imports.
On the capital side, we also know that over the last few years, ESG investment has become increasingly important – there is now far greater appetite for climate-friendly investment and reducing carbon emissions. Coupled with a reluctance from lenders to fund carbon-intensive energy projects, we do not expect to see a shortage of capital coming forward for clean energy projects. The transition will continue to offer attractive investment opportunities across the risk-appetite spectrum.
As I discussed on the podcast, these opportunities broadly fall into four categories. More conservative investments in operational power generation assets, such as wind and solar farms, which benefit from FITs and offer strong cash yields. Slightly riskier but more attractive returns from opportunities in storage and metering companies that we are exploring ourselves. Higher risk, yet higher return opportunities in the construction-side of renewable energy and the development of new projects. Furthermore, dislodged opportunities from listed clean energy players who have seen their share prices decrease can still offer investment value.
In terms of asset type, we expect this to translate to strong growth in both the solar and offshore wind sectors. Solar PV is a very economical power source and is deployable in a range of regions unsuitable to conventional power generation. Offshore wind is deployable at significant scale, as we have seen in Europe, and has a high capacity factor.
As policymakers start planning to bring our economies out of hibernation from the Covid-19 crisis, it is essential that the recovery is underpinned by our net-zero ambitions. This will help to ensure our long-term economic stability. Over the past decade, renewable energy generation has helped lead the decarbonisation efforts of European countries and it is vital that these levels of institutional investment are maintained going forward.
Once again, I’d like to thank Reuters for inviting me onto the podcast and to my fellow panellists for such a timely and engaging discussion. If you missed the podcast, you can listen to the recording by following the link below:
September 29, 2022
September 28, 2022