Latest data suggests that renewable energy deals have lost some momentum.
In the Paris Agreement of 2016, a group of developed countries pledged to provide $100bn in annual climate funding by 2020. The global action plan aims to avoid dangerous and irreversible climate change by limiting global warming to well below 2°C and pursuing efforts to limit it to 1.5°C. In response to the Agreement, renewable energy deals hit (what was at the time) the highest quarterly number of recorded transactions in Q4 2016. Since then, the figures have continued to rise and 2017 set a new record with 1,615 renewable energy deals, followed by 1,508 deals in 2018.
Such strong figures indicate that the effort to make a difference for climate change, to invest in any alternatives to the traditional oil & gas industry, is well underway. But are the current investment levels in renewable energy sufficient? Will it be enough to make the necessary positive impact on climate change?
As the overall infrastructure market plunged in the first quarter of 2019, the number of renewable energy transactions also slowed. This could be due to a combination of factors: sourcing suitable renewable assets has been challenging, interest in the market has ensured a more competitive environment and the time taken to complete deals has increased due to the demand for large-scale assets. Furthermore, oil & gas entity-level deals dominated Q2 transactions in terms of their financial size – these are companies that specialize in operating natural gas pipelines and terminals. The pressure to take action on the Paris Agreement is therefore not as widespread as it should be to reach the agreed goals.
However, there is hope for renewable energy transactions to regain momentum. The number of renewable energy deals, even if not their aggregate value, should continue to outweigh conventional oil & gas energy deals, as the chart above suggests. What’s more, the way investment in renewable energy deals is evolving also suggests a positive turn. Energy storage that is attached to wind farms and solar farms is also being bought separately, indicating that investors are aware of the importance of these storage facilities in furthering the impact of renewable energy. Demand for energy storage facilities also suggests that interest in this asset type is increasing: 11 facilities have been acquired in 2019 so far, including American Electric Power’s acquisition of the Auwahi Wind and Battery Storage Facility from Sempra Renewables in February. The deal is part of a larger transaction for a US portfolio, acquired for a total consideration of $1.054bn – comprising $584mn of equity, including $33mn in working capital, assumed debt of $470mn and $162mn of tax equity obligation.
There is still a lot of work to be done to achieve the 2020 goals set in the Paris Agreement – globally, we are making efforts in the right direction, but the progress is insufficient. Renewable energy may only be a small part of the progress being undertaken, but with the increasing shift towards electricity generation from renewable sources and away from the more traditional fossil fuels (many existing coal-fired power plants are in the process of being retired), the International Renewable Energy Agency estimates that renewables will make up at least 30% of the world’s electricity supply by 2020. This is a vast improvement on previous levels, and by 2050 we will have reduced air pollution, improved public health and reduced environmental damage.
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