Renewable views

Utilities Unbundled - Issue 15

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In the past decade, renewable energy has grown from adolescence to adulthood – so what trends can we expect over the next decade?

“Weaning the renewables industry off subsidies will unleash great opportunities.”

— Ben Warren, EY

May 2013 marked the 10th anniversary of our Renewable Energy Country Attractiveness Index.
Here are three trends we can expect to shape the renewables industry over the next 10 years.

1. A subsidy-free world for renewables

We are at a tipping point on subsidies. After 25–30 years of government support, subsidies for renewables are toppling like dominoes as governments struggle with debt and technologies mature.

In the US, production tax credits have created boom-bust cycles in the wind sector; feed-in tariffs and other subsidies have been slashed or removed in Europe; and even China has gradually reduced its solar subsidies.

Although punitive retroactive measures have pushed some markets to the brink, the news is not all bad. Weaning the industry off subsidies will unleash some great opportunities.

In 10 years, subsidies will be gone, and many markets will have renewables projects that are price-competitive with other forms of generation. We are already seeing unsubsidized solar projects going ahead in Spain and Chile, while many new farms in Brazil and Australia are now cheaper than gas.

2. “Asset-light” utilities

The capital model for utilities will evolve. Significant capital is needed for infrastructure upgrades and new generation assets, but project finance is tight, and utility balance sheets are constrained.

A shift from asset owner (where the generation assets sit on the utilities’ balance sheet) to asset operator (where assets are owned by investors but operated by utilities) will free up much-needed capital for utilities.

I often hear the argument “our shareholders don’t want it.” But shareholders do want derisked balance sheets, and may even be the institutional investors that will in turn become asset owners.

In 10 years, you can expect the sale of non-core generation assets to be complete in Europe and expanding to generation assets globally.

3. Companies producing and buying their own renewable energy

High energy costs, unstable energy supplies and strategic brand will result in more companies producing their own green energy or buying it directly from renewable generators.

Google led the way in 2007 with a 1.7MW solar farm. Other companies such as IKEA, Nike, HSBC, Volkswagen, PepsiCo, Renault, and Walmart are following suit.

Though the vanguard is in consumer goods, retail, finance, technology/telecoms and pharmaceutical industries (see Who’s got the power), in 10 years’ time this will be a mainstream trend.

This is an abridged version of the full article in Utilities Unbundled.

For more information on this topic, please contact Ben Warren.

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