Investing in greenWhat Ontario’s Green Energy Act means for investors |
Since its introduction earlier this year, Bill 150, the Green Energy and Green Economy Act, has been making waves in Ontario’s investment community. With its ambitious goal to encourage spending in renewable energy projects, the Act aims to accelerate project approvals, speed up grid connections and set standard pricing with a feed-in tariff. Yet, despite its promise, many investors remain uncertain about how to take advantage of the opportunities.
"Private equity funds should lay the groundwork for future opportunities now, so they will be ready to react quickly when they emerge" -Mark Jamrozinski
To help clarify the issues, Deloitte partnered with the Canadian Venture Capital Association to facilitate an interactive discussion around both the perceived barriers and the value of green investing.
Too good to be true?
As participants at the joint event agreed, Ontario’s government has demonstrated strong support for green energy companies by preparing for the inevitable cap and trade system that will exist in the marketplace.
But many investors remain leery. Those that have lived through the introduction of similar initiatives are hesitant to jump in with both feet at this early stage. Others are inclined to invest in different jurisdictions, including the U.S., that seem to offer a higher rate of return on green energy projects.
“Thanks to Bill 150, private investors will enjoy tremendous opportunities to participate in the province’s economic development,” stresses Mark Jamrozinski, co-chair of Deloitte’s Private Equity practice. “But those opportunities will play out differently depending on where you fall along the investment spectrum.”
Time investments carefully
Venture capitalists, for instance, are poised to realize the benefits most quickly as start-up companies emerge in response to the incentives contained in Bill 150. Already, entrepreneurs are seeking capital to finance the development of smart grid technologies, as well as wind and solar powered projects, providing venture capitalists with a plethora of higher risk / higher reward investment opportunities that fit their business model.
Infrastructure funds stand to benefit from the introduction of Ontario’s feed-in tariff system, which plans to guarantee prices on long-term projects (see sidebar). With increased certainty around these 20 and 40 year agreements, infrastructure funds may be incented to invest in Ontario rather than in other jurisdictions where project terms remain undefined.
This leaves private equity investors, who remain unsure about their role at this point. The opportunities most likely to appeal to private equity funds include investments in the service companies that will support renewable energy generators. It’s just that these companies won’t gain real traction for some time.
“Although the timing is inexact, private equity funds should lay the groundwork for future opportunities now, so they will be ready to react quickly when they do emerge,” Jamrozinski notes.
Get ready to respond
Although no one can predict the long-term implications of Ontario’s Green Energy Act, one thing is clear. The opportunities available to the investment community are unparalleled.
To reap the rewards, you need to prepare in advance. This means assessing the technological and tax consequences of the emerging regulatory environment on your business. It also means conducting the in-depth due diligence required to identify optimal investment targets. This proactive stance will not only position you to recognize opportunities as they emerge; it will also enable you to strike while the iron’s hot.
Inside Ontario’s feed-in tariff programOntario’s Green Energy Act proposes to introduce one of North America’s first comprehensive feed-in tariff programs, which features:
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