Remember when “bankability” used to be a big deal for wind and solar? When developers struggled to make their projects attractive to investors? Well, those days are over.
Investor confidence in renewable energy is at an “all-time high,” according to an analysis released last week by the American Council on Renewable Energy (ACORE).
Even though investment in U.S. renewables dipped 12 percent in 2020 year-over-year because of the anticipated loss of the federal wind Production Tax Credit, the market has attracted $167 billion in private backing since 2018, the ACORE report found.
“Surveyed investors and developers report, on average, even higher confidence levels in the renewable energy and energy storage sectors than in ACORE’s past surveys, which have always reflected strong optimism,” the industry group noted.
But most of that confidence is directed at just two asset classes. Solar energy accounted for 62 percent of U.S. private-sector investment in renewable energy and enabling grid technologies last year. Wind power made up a further 31 percent.
This heavy bias toward solar and wind is typical of renewable energy investments worldwide. Increasingly, though, the energy transition is creating new investment opportunities that could become significant asset classes in their own right.
Here are seven of those emerging investment opportunities, as pinpointed by a diverse group of global industry experts in conversations with Canary Media.
Batteries are starting to rival traditional renewables as an investment-worthy asset class. ACORE notes that “energy storage and utility-scale solar rank as the most popular preferences for investment among surveyed investors over the next three years.”
“Beyond wind and solar, energy storage is continuing to grow rapidly, with 2021 installations expected to almost double those in 2020,” Tom Heggarty, principal analyst at Wood Mackenzie, said in an email.
Energy storage is an asset class “including, but not limited to, lithium-ion batteries,” Chris Head, a private-sector specialist at the Climate Investment Funds, said in an interview. The Climate Investment Funds, which are supported by multilateral development banks including the World Bank, have set aside $350 million to invest in energy storage, he said.
“We see a lot of chemistries and mechanical shorter- and longer-duration technologies coming out that are of interest,” he said.
Among those worth watching are battery technologies that don’t have the “ethical and environmental issues” associated with lithium-ion, Duncan Clark, director of biogas-to-liquid-fuel developer Renovare Fuels, said in an email.
“A team of researchers at Texas A&M has developed a new metal-free battery platform that could lead to more sustainable, recyclable batteries,” he said. “These batteries would remove the need to mine precious metals and open the possibility of developing wearable tech and the ability to recycle them efficiently.”
There’s no denying that low-carbon hydrogen is on everyone’s lips. But the investment case for this much-feted gas is still unclear. That much is evident from the ambivalent attitudes expressed by investors.
“Stay away from hydrogen,” Alexa Capital partner and co-founder Gerard Reid cautioned in an email. “Conservative investors can go into the green utilities.”
But according to Zula Luvsandorj, a project finance adviser to the U.K. government’s Infrastructure and Projects Authority, "larger investors [are] already starting to position themselves to...[rapidly implement] hydrogen projects and other related sources.”
“They feel that if they don’t act now, it will be too late to position themselves in hydrogen markets,” she said in a written statement.
Wood Mackenzie’s Heggarty said low-carbon hydrogen “is the technology likely to receive the most attention in 2021, if not actual capital investment. We’re tracking an electrolyzer pipeline of over 61 gigawatts, a twentyfold increase in less than two years.”
Carbon capture and storage
Carbon capture and storage (CCS) and carbon capture utilization and storage, long seen as oil industry excuses to continue exploiting fossil fuels, have gained a veneer of respectability after being endorsed by bodies such as the International Energy Agency.
However, unlike energy storage and even clean hydrogen, the investment case for CCS is still highly speculative. That’s because the technology’s value is utterly dependent on an uplift in global carbon pricing.
“If you look at net-zero roadmaps globally, in pretty much all of them you are going to find hydrogen and/or CCS, sometimes hand in hand,” said Ian Thomas, managing director of the energy-focused merchant bank Turquoise International, in an interview. “But CCS has got a technology challenge as well as a market-centered challenge.”
Nevertheless, the oil and gas sector is still eager to back the technology.
“If I were to pick one topic that I’m super keen about, it’s carbon capture and carbon capture and utilization,” Audun Abelsnes, managing director of the Equinor & Techstars Energy Accelerator startup incubator, said in an interview. “We have one or two companies out of 10 every year in that space.”
Abelsnes noted that some startups “have attracted really big investors. But developing this stuff is super complicated. It’s very expensive. So it’s also a tough and difficult investment area.”
Could geothermal be the big out-of-nowhere energy story of 2021? As Canary Media’s Eric Wesoff reported last month, enhanced geothermal is garnering plenty of investor attention but only a fraction of the hype we are seeing for clean hydrogen.
The drive for investment should be obvious: Dig deep enough and you will reach an inexhaustible and practically unlimited heat supply that could fulfill the lion's share of global energy needs.
The catch is in “deep enough.” But if there is one industry that knows a lot about extracting energy from deep underground, it’s the oil and gas sector. The increasing pressure on oil and gas companies to shift investment to lower-carbon activities could position their technological and operational acumen in geothermal technology’s favor.
As it stands, enhanced geothermal energy is likely still too nascent to survive without government subsidies, said Jack Abbott, public relations and communications manager at the U.K. Association for Renewable Energy and Clean Technology, in an interview.
“[But] we know big companies like BP and Shell are looking to diversify,” he said. Geothermal is something the oil and gas industry is potentially looking to transition to, “and that’s where the big money starts.”
Abelsnes said the Equinor & Techstars Energy Accelerator invested in a geothermal startup last year. “Geothermal, in certain places, is fantastic,” he said. “But, again, it’s complicated. It’s a really hazardous environment underground.”
Electric vehicle charging
Look at plans to completely dispense with fossil-fueled vehicles, and it should be obvious that EV charging infrastructure must be a big investment area — and sooner rather than later.
Indeed, there is a lot of thought going into how to roll out vehicle chargers fast enough to keep pace with the rise of e-mobility. Companies such as TeraWatt Infrastructure, set up by Google’s former chief energy strategist, are pouring cash into charging hubs. Two of the biggest U.S. EV charging network providers, EVgo and ChargePoint, have gone public via special-purpose acquisition company (SPAC) reverse mergers to raise capital to invest in this booming need.
“E-mobility is something we are expecting to increase our focus on quite a bit” around the world, commented Head, referring to the plans of the Climate Investment Funds. “It’s a really interesting sector because you get into advanced technology for the developing countries.”
Charging infrastructure is “on the cusp” of becoming a hot investment property, said Craig Lucas, director of energy transformation at the engineering giant Mott MacDonald, in an interview.
“If you build rapid charging infrastructure now, you might not make money because there’s a chicken-and-egg situation,” he said.
Biomass and waste-to-energy
Turning plant and animal waste into usable energy might not sound as sexy as building massive battery plants or turning air into jet fuel. But biomass and waste-to-energy projects still offer an interesting, albeit sometimes challenging, niche market for renewables investors.
“Biomass is a huge focus for us,” said Abbott. “It is already one of the biggest contributors to the energy transition.”
In waste-to-energy, anaerobic digestion plants are “a proven technology,” said Thomas at Turquoise. “Lots of those have been financed. They’re typically relatively small in scale, under 10 megawatts, and constrained by the availability of suitable waste streams.”
Hydro and pumped storage
Last but not least, investors with the stomach for long project lead times and often protracted permitting battles can look into hydropower.
While large-scale dam projects may be beyond the scope of most investors, smaller hydro plants can still be attractive.
In the U.K., for example, “hydro has a part to play in baseload generation, and we were pleased to see a 2-megawatt investment of ours in Scotland become operational in 2020,” said Matthew Clayton, managing director of Thrive Renewables, in an email.
Also, pumped-hydro storage is a “more real” investment opportunity than many others in clean energy right now, said Mott MacDonald’s Lucas. “Pumped storage plants are quite flexible, and there’s a resurgence of interest in certain territories that we deal with.”
(Article image courtesy of Maxim Hopson)
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