CIBCEQUITY RESEARCH
October 10, 2022 Industry Update
Renewables & Clean Energy Conference
Takeaways
Optimism Led By Expanding Investment Outlook
Our Conclusion
We hosted six panel discussions and a keynote speaker at our inaugural
Renewables & Clean Tech Energy Conference. Presenting companies
included a number of companies under coverage (AQN, AY, BEP, BLX,
CPX, INE, NPI, & TA) along with a number of other U.S. and global firms
(AES Clean Energy, Aker, Apex, DESRI, EDPR, Equinor, Hydrostor,
Morrison & Co., rsted, & Pattern Energy).
In general, there was a clear tone of optimism around an expanding
investment opportunity in renewables and broader decarbonisation efforts
around the globe. The Inflation Reduction Act is supercharging growth in the U.S. and provides enhanced visibility. Additionally, a renewed focus on energy optimism and higher demand for clean power vs. viable projects today tilt the pendulum back in favour of developers, allowing them to pass through higher costs and earn decent returns. That said, there’s a number of risks and challenges to overcome, including transmission constraints (notably in the U.S.), talent pool and increasing cost of capital; however, participants noted that access to capital is not constraining growth today. In this report, we provide key takeaways on the themes outlined below. Our panel specific highlights are provided on pages 4-9.
Investing Across Decarbonization Opportunities
Panel Members:
• Aker Horizons ASA – Kristian Rkke, CEO
• Algonquin Power & Utilities Corp. – Arun Banskota, President & CEO
• Brookfield Renewable Partners – Wyatt Hartley, CFO
Key Takeaways:
• IRA Helps, But Green Hydrogen Investment Case Not Ready Yet. The extension of subsidies for wind and solar should help keep renewable costs relatively low for the decade ahead in the U.S., and we may see a material increase in battery storage investments, but panellists believe green hydrogen still is not economic today. The tax incentives in the U.S. for hydrogen help, but there’s still a gap between what is needed by
producers vs. what buyers are willing to pay today. It’s possible green hydrogen moves forward in other markets, where gas is more expensive and/or there’s a more coordinated effort to decarbonize large transport and industrial needs. Aker noted that it’s still challenging to get economic projects and bankable deals, but increasingly it is seeing opportunities in some industrial processes. The general view is that in North America, we
won’t see meaningful investments until the end of this decade and into the 2030s.
• CCS Investments On The Horizon. On this panel and the subsequent panel discussion on the outlook for CCS investments, members seemed cautiously optimistic on the prospects. That said, firms are being very selective and will only commit capital where there’s scalable carbon capture technology, attractive geology/transportation and equally
important there’s a clear revenue strategy. Additionally, government support is still needed and that can come in many forms—tax credits (like 45Q in the U.S. and investment tax credit in Canada), clear incentives (e.g., LCFS) and/or a firm price on carbon. Firms noted that partnerships are important in this space, whether from a technological perspective or from access to good pore space. We could see more final investment decisions in the year ahead assuming all the pieces of viable CCS investment can be lined up. Finally, panellists noted that CCS is needed to get to a net-zero grid, given gas-fired generation will likely be needed for more than the next decade.
• Access To Capital For Energy Transition Expanding. Panellists noted that capital is available for quality decarbonization projects, but it is incumbent on developers to deliver projects with good risk-adjusted returns. In addition to regular funding channels in the equity and debt markets, private equity and infrastructure capital are also at the table.
Further, with more volatility in public markets right now, many firms will likely try to lean on capital recycling and private capital funding partners. Brookfield recently raised its $15B Global Energy Transition Fund and has deployed or made commitments for 20% of the funds. Additionally, other large infrastructure investors have expanded the scope of
investments or raised dedicated funds for things like clean hydrogen.