POWER June 2020 - 12

GLOBAL MONITOR
newables and electric battery storage. "
EnCap and Yorktown Partners, a private
equity firm, last year joined to support US
Grid Company, noting in a news release
that " The investments will decarbonize
the power grid through the addition
of large-scale battery storage systems,
renewable energy projects, and the implementation
of other technologies to
achieve major carbon reduction. "
Rob Freedman, a partner with Shearman
& Sterling and one of the firm's
energy industry leaders, told POWER
the trend of investors moving from traditional
fossil fuels and toward renewables,
including storage, will continue.
" There are funds that have been oil and
gas investors, certainly a lot of pension
funds and infrastructure investors, and
what I've been told is that their investor
base has told them to shift to ESG
[environmental, social, and governance]
assets, " he said. " I think this will become
an increasing focus for each PE [private
equity] shop. "
Pedotto agreed. " We don't work with
traditional E&Ps, but our renewables
partners are more bullish than ever and
thinking long-term, " he said. " Obviously,
the virus creates short-term challenges
[particularly in finishing projects due to
material and labor shortages] but the
long-term outlook is extremely bullish. "
That does not mean investors won't
continue to look for opportunities in fossil
fuels. Adam Rozencwajg, managing
partner at Goehring & Rozencwajg Associates,
told POWER that a post-coronavirus
recovery could have investors
looking to support that sector. " Gas E&P
stocks will be excellent performers, " said
Rozencwajg. " We could go into the winter
season with the lowest [natural gas]
inventories on record. Given the Marcellus
and the Permian have been the only
sources of growth for years and that
they're both in decline, the gas story has
become much more bullish. "
Freedman said that while the move
toward renewables is ongoing, there will
still be support for traditional sources of
power generation. " I am a believer in
a generation mix, " he said. " That generation
mix will generally move toward
greater and greater renewables as time
goes on. To say the world should stop
investing in fossil fuels and in a blink of
an eye move toward renewables, that's
not realistic, and not where the world is
going. But even those states with fossil
fuels are pushing toward renewables
... the generation mix is moving more
toward clean energy.
It's just naturally
12
3. Engie North America in April announced what it said is the largest tax equity deal of its
kind in the U.S., with 2 GW of renewables, including 1.5 GW of wind power. The deal was financed
with $1.6 billion in tax equity commitments from Bank of America and HSBC. Source:
Shutterstock
how it's been going, people understanding
the idea of sustainability long-term.
I think I've heard more in the past year
about this drive toward ESG, more than
ever before. I think you're going to see a
continued push. "
Jay R. Young, founder of Dallas,
Texas-based King Operating Corp., told
POWER, " Many of the financial advisors
I know and work with encourage their
investors to have a diversification strategy
within their portfolio. While there
will always be investors who fear lower
oil and gas prices and look to exit, there
are many who see the opportunity of
lower prices to invest now while drilling
and operation costs are lower, knowing
that prices will go up again. " Young noted
that fossil fuels still provide the majority
of the world's energy, which should
not be dismissed by investors. " Investors
should absolutely continue to support
fossil fuels for power generation, "
he said. " Again, I believe it is important
for any investor to look at diversification
within their portfolios and the option of
including a combination of renewables
and fossil fuels would be advisable. "
While natural gas will continue to hold
investors, the same is not likely for coal.
Moody's Investors Service in April wrote
that it " expects a very challenging year
for the coal industry in 2020, " and it said
the sector will be one of those most
significantly affected by the economic
downturn caused by COVID-19. Several
banks already have said they will end
investments in coal projects; Australia's
Westpac Banking Corp., the country's
second-largest lender, is among the
latest, announcing in early May that it
would exit the sector by 2030, and saying
it would not establish relationships
www.powermag.com
with any new thermal customers. The
bank said it instead has set a target to
lend about AU$3.5 billion ($2.24 billion)
to " climate change solutions " over the
next three years. Westpac in a report
published May 4 said, " Westpac recognizes
that climate change is one of the
most significant issues that will impact
the long-term prosperity of the global
economy and our way of life. We are
committed to managing our business in
alignment with the Paris Agreement and
the need to transition to a net zero emissions
economy by 2050. "
The U.S. Energy Information Administration
(EIA) in April said coal-fired power
generation is especially vulnerable as
demand for electricity shrinks; the EIA
forecasts U.S. coal-fired generation will
fall by 20% this year compared to 2019,
with coal production off 22% due to the
drops in demand. The agency said more
mines will be idled, and the global market
for coal exports also will suffer.
For developers of renewable energy
projects, tax equity is an important tool,
supporting investment and providing
new sources of capital. Analysts told
POWER that tax equity financing supports
anywhere from 40% to 60% of
investments in renewable energy projects,
and developers with established
relationships with big banks continue
to see money moving into utility-scale
renewable projects. There are concerns
about financing for other sectors, such
as residential, and commercial and industrial,
but with the cost of solar and
wind power falling-solar costs have
dropped 85% in the past decade, and
wind costs have fallen nearly 50%-the
economics can still be favorable.
Bloomberg
New Energy
Finance
POWER|June 2020

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POWER June 2020

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