Bloomberg New Energy Finance (BNEF) just held its annual Future of Energy Conference in New York. The theme of the conference was “The Age of Plenty, the Age of Competition,” a reference to the growth in energy options through fracking, solar, wind and storage and the relentless competition reducing costs and driving innovation. Below we summarize the main messages from the conference.
In our view, a major takeaway was the exponential growth in renewable energy deployment. However, due to the expenditure required to continue pushing down the cost, it remains unclear how investors can benefit aside from direct investment in projects.
While utilities are waking up to a “customer first” focus, we believe their capacity to deal with changes is limited, particularly with a slow-moving regulatory environment. There is an understandable fear that Silicon Valley is turning its attention to the power markets; one need only look at Uber and the taxi industry to consider the impacts of technology-driven disruption on incumbents. To this end, we observe the rapid growth in the number of companies developing software to manage sections of the grid from the generation to the household.
Utilities see the role of renewable energy as a part of the electricity generation mix, to be integrated by extending the grid through additional transmission infrastructure. Conversely, battery storage providers see the possibility of using renewables to downsize the grid and avoid transmission capex. The jury is still out on the winner, but the recent history of solar and wind provides evidence that storage could be substantially cheaper and more widely adopted than many industry observers currently forecast.
Batteries represent a new era for electricity, enabling warehousing and driving new applications that we have only begun to explore. In discussing the positon of storage in the system, “behind the meter” – at the customer location — seems superior as it generates all of the benefits of in-front-of-meter with the added advantage of reduced consumption and exposure to peak prices. Corporates appear to be major drivers in the uptake of storage.
Turning our attention to the transportation industry, electric vehicles are being viewed as a way to engage consumers in an energy discussion and increasingly as a “device that you drive.” One emerging idea for EV charging payments is block chain. This could enable seamless payment for EV charging anywhere on the grid. EVs may also be a boon for utilities as a new source of electricity demand with consumption potentially adding 11% to demand over the next decade.
In the traditional energy space, the nuclear discussion in the US remains focused on regulatory barriers, but new technology is coming. Small modular reactors, such as NuScale Power’s SMR, could be in operation by 2024-2025, and Transatomic has updated an older technology, the molten salt reactor, enabling it to use nuclear waste as fuel. Oil & gas companies are concerned about short term prices but the technology breakthrough in fracking has been breathtaking, enabling cost reductions and lower breakeven prices, notwithstanding the low price environment.
The investor panel discussed the selloff in Yieldcos. Panel members reiterated their confidence in the YieldCo model, though pointed to the need for improved governance. (For more on this topic see our report Are YieldCos Looking After Their Investors?) In discussing growing demand for green bonds, an investor said that price premiums relative to similar corporates will signal a new level of confidence in green bonds. Finally, asset owners are increasingly demanding that environmental, social and governance factors be considered in their investments, and divestment considerations are now becoming part of the discussion for ‘mainstream’ asset managers.
Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.
Sebastian Vanderzeil is a Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.