On October 20th, Cleantech Group and Enovation Partners, in collaboration with our sponsor Stifel, convened an invitation-only executive summit in New York City focused on the emerging investment opportunity sets and trends in energy for 2017 and beyond. The discussion-focused event helped facilitate a day of shared viewpoints from the attendees, which included investors, corporates, utilities, innovators, and other stakeholders in energy.
The morning sessions elicited perspectives on the investment opportunities and challenges, and how those differ across capital classes in a world of increasing renewable generation, shifts towards distributed generation, and commodity abundance. The afternoon featured presentations from six innovators across energy before breaking into four roundtable discussions diving deeper into specific opportunities. Below is a summary of key takeaways from the day.
Drivers of distributed energy resources (DER) and behind-the-meter (BTM) solutions
Rooftop PV has captured much of the attention in BTM applications, with its growth fueled by rapidly falling costs. However, BTM solutions include a vast set of other technologies with different adoption drivers, particularly for commercial and industrial (C&I) applications. The impact of disruptive events like Hurricane Sandy and the wildfires in California are less-mentioned drivers of BTM solutions that highlight the value of reliability and resiliency, potentially enabling the rise of reliability-as-a-service business models. Other drivers include certain utility rate structures that have increased the economic attractiveness of power factor correction technologies. And with the rise of DER and microgrids, peer-to-peer energy is a new business model to watch, with Germany as the potential pioneer.
The role of the utility and impacts of regulatory models
One well-debated topic of the Summit was the utility business model within the shifting world of energy, and the rise of DER and PV in particular. Analysis by Enovation Partners suggests that utilities have less than 10 years to determine their solutions for a DER-heavy grid. Summit attendees shared a number of perspectives on the future of the utility, ranging from the utility being deeply involved as the provider of an integrated network of energy assets to a future in which a utility has little involvement, such as what has occurred with telecom utilities. The vertically integrated utility, with regulated generation, was seen as less of a true monopoly situation than the distribution-only utility.
Challenges for investors
While investors across capital classes are interested in investing in energy, they face a variety of challenges in deploying capital. Equity investors in attendance raised policy and regulatory differences across the US as a key hurdle in making investments. With 100+ energy mandates at the federal level alone, and additional state and municipal policies to understand, the complexity of due diligence for energy investments is difficult and costly. For asset investors, PV and wind projects can provide attractive returns today, but the challenge lies in fund structures and mandates. Frequently, institutional investors with multi-billion dollar funds have to make minimum investments of $100 million, but cannot be more than 10-20% of a given investment. Few energy opportunities are large enough to meet such criteria.
Climate change action
Increasing awareness of climate change and the urgency to respond was highlighted as a macro driver of investment opportunities and actions. Family funds were mentioned as a capital source that has taken on a growing role investing in climate-oriented solutions. While asset investors have a $30-40 billion annual investment opportunity in wind and PV projects, it was acknowledged that this figure needs to triple to fight climate change. Lastly, tying back to the utility regulatory model, the incentives laid out for regulators in states with regulated generation were mentioned as a potential restriction to climate change action, as regulators may be hesitant to take actions that increase electric rates faster than inflation.
The Summit touched on many key themes and opportunities that CTG is tracking, and we will continue to cover in our upcoming events, including Cleantech Forum San Francisco in January. CTG Monitor and Intelligence subscribers will also see ongoing coverage and research related to these critical issues.