A new energy world will disrupt the stability of these investments — for better and worse
As energy becomes cleaner, more affordable and efficient, the risk of diminishing returns to traditional investors is real, as energy companies grapple with a retreating consumer base and stranded asset costs. Uncertainty around long-term cash flow and returns may force investors to seek investment opportunities elsewhere.
For clean energy to expand, energy companies need to find new buyers, offering them simpler, lower-risk products. Energy companies have long managed these complexities and it remains to be seen if they will meet the challenge as the market transforms around them. To be successful, they will need to team up with other players in the energy ecosystem and find the investment needed to make infrastructure and networks fit for the future.
Despite these challenges, new opportunities are emerging for a different type of investor. As the energy transition accelerates, energy companies have the chance to develop new business models that favor innovation and leverage new and emerging technologies. Already, they are increasing their investment in technologies that enhance power system flexibility and integrate renewables and new sources of demand. They are also spending more on smart grid technology, including smart meters, advanced distribution equipment and electric vehicle (EV) charging infrastructure.
Forward-thinking energy companies could also offer 100% clean power to customers, including corporate buyers, and in doing this, bring all the complexities around price and supply risk back to themselves. Already, some energy companies have established VC funds that sit outside of their regulated entity to help fund this type of innovation.
And further opportunities are emerging for VC funds and PE firms to finance the growth of new technologies, customer experiences, electricity delivery models and other commercially focused ventures that fit well into their three-to-five-year investment horizon.