This paradigm shift is happening at a time when renewable energy is becoming increasingly affordable and its role in the future energy mix is moving firmly into the mainstream. We look at how the sector has evolved since its early beginnings in the 1970s, and the tremendous transition witnessed during the 10 years of this publication, and consider what the future might hold.
Transactions market on the edge
Bankruptcies and consolidation are reshaping the asset ownership and supply chain landscapes, and we are teetering on the edge of emerging renewables markets finally opening their doors and improved liquidity in the banking sector. But, the market seems to be asking for a bit more time to adapt itself to this new world order. Valuation gapsand continued forbearance by stakeholders of indebted companies are currently limiting activity, while de-leveraging strategies and the reallocation of capital priorities are driving M&A activity around operating assets.But once the tectonic plates stop moving, it will be exciting to see the opportunities that unfold for both the energy market survivors leftbehindand those who are currently knocking at the door ready to come in once the market stabilizes.
Big deals are still being done,however, as evidenced by ABB’s US$1b acquisition of Power-One to beef up its solar connectivity credentials. Divestment announcements by BP and Bosch, meanwhile, indicate transaction opportunities arising from some major corporates increasing their focus on core business models.
Institutional investors step up
The financing communityis also seeing the ground shift beneath it, as new players such as institutional investors step up to answer the eight trillion dollar question. The long-term, predictable yield nature of infrastructure assets is starting toattract direct investment into renewable projects, but these investors are still finding their feet. An alignment of interests and the equitable apportionment of risk and reward between sponsors and institutional investors, as well as improvedunderstanding of technology performance and the realization of returns, will help mobilize more capital into the renewables sector.
Subsidies ... yesterday’s news?
On the policy front, austerity measures and global competition have accelerated the timeframe in which the sector needs to wean itself off subsidy dependency. Cost reductions, energy efficiency and binding international commitments on decarbonization all have a role to play, but consumers and corporates are likely to be the real drivers of the low carboneconomy in the years ahead.
See the full study in the attached document