The mainstreaming of renewable power

May 30, 2016

Renewable power sources, most notably wind and solar, are producing a significant and growing portion of the world's electricity. Multiple factors have pushed renewables to the mainstream of the power industry. First and foremost is their increasing cost competitiveness: According to Bloomberg New Energy Finance, unsubsidized costs for wind and solar power declined 15% and 55%, respectively, over the last five years.

Renewable power generation is also one of the most active sectors for infrastructure investment. Globally, the sector generated $268 billion in transactions over the five years ending in Q2 2015, according to Dealogic. North America and Europe are the most active geographies for institutional investors, with several newer markets also beginning to develop.

The Mainstreaming of Renewable Power

David Giordano, Head of North American Renewable Power, discusses the mainstreaming of renewable power—both in electricity markets, and as an infrastructure investment.

Renewable power sources, most notably wind and solar, are producing a significant and growing portion of the world's electricity. Multiple factors have pushed renewables to the mainstream of the power industry. First and foremost is their increasing cost competitiveness: According to Bloomberg New Energy Finance, unsubsidized costs for wind and solar power declined 15% and 55%, respectively, over the last five years.

Renewable power generation is also one of the most active sectors for infrastructure investment. Globally, the sector generated $268 billion in transactions over the five years ending in Q2 2015, according to Dealogic. North America and Europe are the most active geographies for institutional investors, with several newer markets also beginning to develop.

Despite its growth, the market remains fragmented. There are significant differences among geographies, and there is a dynamic mix of participants across the value chain. Long-horizon investors play a useful role in this ecosystem, providing upfront capital and receiving in exchange a steady, bond-like cash flow for the life of the project.

Strong demand for operating assets has elevated valuations. Investors are showing interest in construction-stage assets, where higher returns can typically be targeted with a modest increase in risk, which can be mitigated through effective construction and equipment-supply agreements.

As coal and nuclear plants are retired, renewables are expected to keep growing. Low prices for oil and gas have not been a headwind for renewables. In the US, gas-fired power plants and wind and solar projects are beginning to play complementary roles on the grid. Globally, renewables account for a major share of new capacity.

A Mainstay For New Capacity