Trendspotting at CohnReznick’s 7th Annual Renewable Energy Summit
Some of the most prominent renewable energy project developers, investors, financiers, and service providers packed the house recently at CohnReznick’s Renewable Energy Summit in Laguna, California. Several trends emerged.
Representatives from Bloomberg News were on hand to offer a prediction of “record capacity by 2020,” despite pending expiration of federal tax credits for the wind and solar sectors. Bloomberg reps said that the primary reasons for such a bold prediction was that new offshore wind project are being added annually, and that the solar tariff is nowhere near as dour as projected.
Conferencegoers agreed that the interest of the capital markets in the U.S. renewable energy sector remains strong and growing, even in an environment where trade policy and energy regulatory pressures are expected to produce a near-term contraction in the wind and solar sectors.
Speakers from all sectors of the capital markets, Wall Street analysts, public and private capital, as well as lending and other financial institutions all agreed that barring unique and unprecedented challenges presented to renewable energy sectors, the supply and access to capital for renewables remains robust.
Other key takeaways from the conference include:
- The wind sector performed like the 2012 forecast, but shows a large build up to 2020.
- There are now 50 gigawatts of safe-harbored turbines, and with wind and solar becoming more common, this will help keep the markets stable and growing.
- Asset financing in renewables is about the same as 2014, with active lenders more than doubling, which has brought down spreads by 150 basis points.
- While rising interest-rates are mitigated by tax-rate reductions for renewables, the same rate hike has impacted utilities.
- This may bode well for the renewable energy industry, per Bloomberg, because financiers are more sensitive to interest rates than tax reductions.
- The nascent energy storage industry is still not where it needs to be. Prices for storage will come down, and that price decline will be driven by the dynamic resulting from the Chinese and Asian energy market influence.
Competition for project financings should continue to ensure a strong wind and solar development market despite a projected lower aggregate installed capacity compared to prior years.
The importance of technology and digitalization in asset management also was highlighted. Those in the asset management sector recognized that complexity is the new reality about asset management protocols, and is expected to rise over the next 3-4 years before asset management protocols become standardized. Additional complexity comes from specific deal features and from managing both development and operating assets.
On the M&A-front, market evolution was recognized, particularly the distinction between M&A’s for new projects versus existing projects. The consensus was that mergers or acquisitions are back to a healthy pace, post- tax reform and post-tariff imposition.
But the impact of solar tariffs are mitigated by the low cost of debt, and generally decreasing capital equipment costs. Concern was expressed over the impact that the steel tariff would have on the wind sector, that the tariff could increase leveled costs by 3-5 percent unless other cost reductions offset this increase.
Investors agreed that renewables remain an attractive sector, although a shift from public to private capital was identified. The M&A-activity for existing projects continues to ramp up, despite the demise of the YieldCo environment; an environment that saw big utilities spinning off smaller renewable energy companies.
Attendees also acknowledged that the days of record installations of wind and solar projects should be attributed to tax policy uncertainty which peaked in 2015 but now has reached a more stable equilibrium. But Q1 2018 investment seemed to slow because of delays triggered by passage of the Tax Cuts and Jobs Act, and corporations taking time to understand the new legislation before proceeding with renewable-energy project investments.
Issues involving the U.S. utility sector, and the its response to renewables also made for lively conversation. The biggest changes to the utility sector will come into view within the next 20 years, but that the last 2 years saw more change than ever before, because utilities re-defined their business models, and forced more on grid-related issues.
The panel on tax equity gave a positive assessment, tempered by the current realities of tax policy. It was agreed that the "supply" of tax equity remains healthy, with about 35 tax-equity investors, including 15 big ticket investors.
This was despite a currently "lighter" pipeline of projects in the near-term due to tariffs and tax reform.