Global renewable energy industry at a pivotal moment
Deloitte, the business advisory firm, today releases a global analysis of the key challenges impacting the growth of the renewable energy sector. Stability in government regulation, tax and incentives are essential to long-term investments, and managers who can attract the funders, partners and appropriately skilled workers to propel their businesses to a global scale were identified as the top two issues.
Roman Webber, Deloitte Renewable Energy Practice Leader, comments: “The renewable energy industry is at a pivotal moment when it must do more than offer proven technology. It must also have the organisation, capabilities and supply chain resources to roll out programs on a significantly larger scale.
“Funding is becoming more available from different sources, but is taking longer to arrange and more expensive. Crucially it depends on the stability of incentives.”
In the wake of the economic crisis, the once robust renewable energy sector has encountered difficulties in funding due to fewer sources, more expensive and onerous terms, reduced government incentives and other regulatory uncertainties from carbon credits and tradeable certificates to tax, can make the picture very complex for investors.
Roman adds: “There are innovative ways renewable energy executives can steer their companies to growth, for example joint ventures that pool resources and create a consortium that can enter new markets and spread risk. Companies can also look to rivals for resources, including the traditional oil and gas sector which offers a source of complimentary expertise to help renewable energy companies plug skills gaps. Oil and gas supply chain companies will begin to think of themselves as energy supply companies.
“Investors seeking new opportunities should look at the supply chain which has to develop significantly to meet the needs of renewable energy companies.”
Deloitte’s report outlines where and how renewable energy companies can grow, the skills and characteristics that its managers will need to drive that growth, and emerging investment opportunities.
Notes to editors:
The topics covered in covered “A look at 10 of the top issues and trends in renewable energy,” includes:
Navigating uncertainty: Where next for government, tax and regulators?
Regulatory uncertainty is complicating the investment environment as governments under financial pressure and changing security of supply concerns are looking at levels and duration of incentives. Additionally, a plethora of incentives – from carbon credits, tradeable certificates and tax credits, can make the position unnecessarily complex investors.
Many companies will be bought this year; is yours one of them?
While equity investments in renewable energy are surging, some IPOs and debt financing are also hampered by regulatory uncertainty and caution. Debt deals are taking longer to close, terms of refinancing are changing and lenders are paying closer attention to power purchase agreements.
Solar energy has had an increase in investments compared to wind. A new wave of companies, particularly from Far East are ready to invest in renewables. Sovereign wealth funds from Asia and the Middle East may also provide some much needed financing in the sector.
Funding: Got any money?
As market conditions continue to show signs of improvement, new IPO issues and project finance rounds may take longer than usual to close and pricing will be tougher with funders taking close interest in underlying terms of power purchase agreements.
Taking a long hard look at environmental and social impacts.
Board members will need to take a hard look at environmental and social consequences of a high-infrastructure business while advancing a sustainability agenda. Companies will need to embed sustainability into their corporate strategy and supply chain in order to preserve their reputation and that of their industry.
Capital programmes: Supersize renewable energy.
As renewable energy projects increase in size, companies need to build world class capital programmes. Challenges will always be present in these super scale projects, but by heeding lessons from other industries, renewable energy companies can reduce the risks and control delivery costs.
Moving to clean energy to create new jobs with specialist skills sets.
The manufacturing side of renewable energy has provided short term relief to the job market, but the demand side of renewable energy will be a longer term source of employment in managing energy usage. While requiring up-front costs of training and retaining, they are likely to pay more and be more sustainable.
Oil and gas versus, renewable energy: Friend or foe?
Fossil fuel development and implementation of renewable energy technologies require complimentary skills sets and dual purpose technologies. Oil and gas companies will find opportunities in the renewable sector while renewable energy firms may find people and skills from the oil and gas sector. Oil and gas supply chain companies will think of themselves as energy supply companies which operate in a number of markets.
Engaging consumers to embrace the trilemma.
Government and renewable energy companies need to obtain buy-in from consumers; in particular demonstrating the benefits to them given the potential costs involved. Companies wanting to develop increasing amounts of renewable energy will need to develop new models for secure and longer-term engagement with consumers,
Large in resources, short on infrastructure
Many locations around the world are ideal for the creation of renewable energy; mountainous and flat regions for wind and deserts for solar power. But, getting that energy from where it is produced to the point of consumption will be a major challenge. Local micro and off-grid generation offers part of the solution, but innovative models to improve the transmission, transportation and storage of energy are required.
Developments of the supply chain: the weakest link?
The supply chain is inadequate to reach many nations’ 2020 renewable energy targets. Scaling up will not be easy and is dependent on continued availability of subsidies, but should present many investment and M&A opportunities.
This report is part of a series of reports released by the Deloitte including oil and gas, power and utilities and mining, and the renewable energy sector. The report group draws upon in-depth interviews with renewable energy companies, industry analysts and senior energy partners from Deloitte member firms from around the globe.
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities.