Alternative thinking 2011: A look at 10 of the top issues and trends in renewable energy

Merger & acquisition activity surges but funding remains tight

Government scrutiny increases as stimulus winds down

World-class scale and new skill sets are critical success factors

New York, 16 September, 2010 – The Deloitte Global Energy & Resources group released today “Alternative Thinking 2011: Top 10 Trends and Issues in Renewable Energy” at the World Energy Congress in Montreal. The report identifies key forces impacting the growth of the renewable energy sector today and over the next twelve months, chief among them the increasing complexities of access to capital, tax and government regulation, and the imperative for renewable energy leaders to effectively manage large-scale operations and attract right-skilled workers.

Rebounding from two years of dampened investments, renewable energy is enjoying robust merger and acquisition activity and an improving initial public offering (IPO) market, in part due to government stimulus. Yet, the lending market remains tough and uncertain as borrowers face increasingly expensive and onerous terms and governments under pressure consider limiting crucial incentives.

“Renewable energy is at a pivotal moment in time as an industry. It must access funding in order to grow, but to do that it must also offer more than proven technology. Companies will need integrated organizations, broader capabilities, and more developed supply chain resources to roll out programs on a significantly larger scale,” said Roman Webber, Deloitte Renewable Energy Community of Practice Leader.

The report identifies new funding sources such as companies in South Korea or sovereign wealth funds from Asia and the Middle East. It also signals a major shift in investor preferences, e.g.,solar energy has asserted primacy over wind for investors.

In another indication of increased expectations for renewable energy companies, the report noted that board members will be required to keep watch on a company’s reputational goals of sustainability and net energy efficiency.

Further, joint ventures are becoming a more common way for companies to achieve scale. Companies can “supersize renewable energy” by pooling resources to create a consortium that can enter new markets and spread risk. Renewable energy companies can also look to rivals for resources, including the traditional oil and gas sector, for complimentary expertise to help them plug skills gaps.

“Looking ahead, many oil and gas supply chain companies will begin to think of themselves as energy supply companies. On the flip side, investors seeking new opportunities should look at the supply chain, which has to develop significantly to meet the needs of renewable energy companies,” Webber said.

The 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. Among the findings:

Impact of regulatory scrutiny:

• Regulatory uncertainty is complicating the investment environment as governments under financial pressure and a changing picture on security of supply are looking at levels and duration of incentives. Additionally, a plethora of incentives—from carbon credits, feed in tariffs, and tradable certificates to tax credits, can create unnecessary complexity for investors.
  
• 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.
  
• A more politicized marketplace will require managers to hone their stakeholder management as well as commercial skills. Separately, managers embarking on joint ventures must exert financial discipline across the board, focus on operational efficiency, and have strong teaming and engagement skills.
  

The bigger costs of sustainability:

• Board members should 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.
  
• At some point, consumers will need to buy into the cost of renewable energy
  

Where the jobs are:

• The manufacturing side of renewable energy has provided short-term relief to the job market, but the demand side of renewable energy should 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.
  

This report is part of a series released by Deloitte that covers oil and gas, power and utilities and mining, and the renewable energy sectors. It draws upon in-depth interviews with renewable energy companies, industry analysts, and senior energy practitioners from Deloitte member firms from around the globe.

Deloitte as used in this release means Deloitte Touche Tohmatsu Limited.

About Deloitte

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Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than140 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's approximately 170,000 professionals are committed to becoming the standard of excellence.

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