Long-term investors key to global energy transition success

Long-term investors key to global energy transition success

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April 1, 2022

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The world’s cognitive shift on climate change has been decades in the making. Now the energy transition is in full swing, long-term investors like Igneo Infrastructure Partners have an important role to play in the societal and technological change necessitated by ambitious global targets.

Transformation of the world’s energy systems is underway, with critical objectives such as the UN’s Sustainable Development Goals and the Paris Agreement requiring industries and individuals to think and act differently.

While the overarching goals are common, every country and region will be coming at the challenge to generate and deploy low carbon sustainable energy in different ways.

In Europe, where renewable generation is at a mature stage and where grid agreements have seen countries and regions interconnected since the turn of last century, upscaling and improving projects at existing connection points is the big focus. It’s within existing projects where some of the biggest strides towards a Net Zero planet are being made in this region.  

Meanwhile, in the United States, battery storage innovation is being pushed forward significantly as the country addresses the fast changing energy mix there, particularly in California where batteries are now essential to smoothing the contribution of solar to grids adapting quickly to accommodate new power sources.

In renewable energy frontiers such as Australia, where the adoption and use of solar and wind generation is quickly gathering momentum, the pipeline for large-scale projects is fuller than ever thanks in part to the appetite from institutional investors and large corporations, along with the large-scale transition from coal to utility-scale renewable energy as coal generators are phased out.

Igneo Infrastructure Partners is well placed to contribute meaningfully to the success of the global energy transition by leveraging its deep partnerships and knowledge in these regions and bringing a global view to capital deployment. The specialist infrastructure investor aims to push renewable energy forward through the platform companies it uses for reinvestment and acquisition, including Finerge in Europe, Terra-Gen in the US and Atmos Renewables in Australia.

More with less

Given the scarcity of electricity grid interconnections in Europe, the attention from asset owners and governments is focused on strategies to maximise utilisation at existing connection points.

Areas such as the Iberian Peninsula – which has the highest renewable penetrations in Europe – is where utilisation techniques including so-called overpowering, hybridisation and repowering of existing engineering and technologies are popping up.

Finerge’s wind farm on the Iberian Peninsula

Regulation encouraging projects to ‘overpower’ has given wind and solar power producers the license to increase the installed capacity of existing projects by 20% until the country reaches its European target for renewable electricity production of 80%. Repowering mandates have also enabled owners to replace existing electricity production facilities with new, larger and more efficient ones at the end of their useful life.

In 2021, Finerge completed its first repowering process at the Serra Da Lage wind farm where one 4.2MW turbine replaced six 750kW smaller turbines. This onshore wind turbine was at the time the largest one in the country and uses a smaller parcel of land.

The company is also in the process of overpowering a number of wind farms with more than 100MW under construction in 2022 with commissioning dates expected over the following 12-18 months.

Meanwhile, governments have carved out scope for energy generators to come up with hybrid solutions to combine solar panels and wind farms to optimise the usage of the interconnection point. Wind and solar resources are complementary and the two different power plants share the same electrical infrastructure costs.

Finerge now has several hybridisation projects on the go in both Spain and Portugal, including a potential investment in floating solar panels at locations close to existing wind farms known as ‘floating hybrids’.

New projects such as the floating hybrid wind farm being explored by Finerge represent a step forward in the race to advance the role renewable energy sources such as wind and solar will play in the energy transition and a deepening of the company’s expertise.

Floating farms offer additional benefits because they do not take up any land except for the limited surfaces necessary for electric cabinet and grid connections, addressing land utilisation in more high density populated areas such as in Europe.

Taking on these kinds of projects has resulted in Igneo and its portfolio companies streamlining development and production processes by leveraging experience and deepening connections with government and other stakeholders.

Hotel California

The acceleration of state-based consumption targets in the United States has resulted in a more than quadrupling of capacity additions from utility-scale renewable energy projects in some regions; California’s Renewable Portfolio Standard (RPS) requires 60% and 100% from electricity sales to be from carbon free sources by 2030 and 2045, respectively.

Terra-Gen’s California wind farm and battery storage

To meet California’s RPS requirements, new generation is expected to come largely from solar photovoltaic due to abundant desert resources and few other options that can be built at scale. The main problem with solar energy generation is that the sun doesn’t shine all the time and demand for energy usage usually falls at times when the sun isn’t high enough in the sky to provide peak utilization.

Battery storage not only smooths the distribution of solar power distribution, but it can strengthen the grid and provide a number of revenue streams for an investment including resource adequacy fees, energy arbitrage and frequency regulation. Storage can also prevent or defer expensive transmission upgrades.

In June 2021 the California Public Utilities Commission (CPUC) approved the procurement of 11.5 GW of resource adequacy, a capacity product that will be filled largely from storage, exclusively from clean energy sources by 2026, evidencing the expected significant transformation of the power grid.

Southern California Edison, the largest in-state utility, estimates 80+ GW of new utility-scale clean generation and 30+ GW of utility-scale storage will be needed by 2045. This requires a development rate that is 2-3x higher than historical levels, representing $170bn of renewable energy investment, the SCE Pathway 2045 Report published in November 2019 highlights.

Through its investment in Terra-Gen, Igneo Infrastructure Partners has several projects in operation and under development that will play a part in transforming the state’s electric grid. These investments also place the company and Igneo at the forefront of battery energy storage and deployment.

Terra-Gen has approximately 1,300 MW (~3,100 MWh) of grid storage in operations or under construction.  In 2022 the company anticipates initiating construction on another 600 MW (1,110 MWh) of storage, with significant additional buildout forecast for 2023 through 2025.

While California is a leader in renewable energy adoption, other states have made similarly impressive commitments over the last 5 years and the state-based transformation of the electricity sector is expected to continue elsewhere in the country.

The lucky country

Australia is an example of a country and region where the origination of large scale renewable energy projects has been slow to date but is expected to accelerate quickly.

Just five years ago, 17% of the country’s electricity came from renewable sources such as wind, water and sun. Fast forward to the end of 2020, as bush fires and floods have continued to ravage some of the country’s more heavily populated regions, more and more Australians have made the decision to turn to renewable energy sources, with more than 27% of the country’s electricity generated by clean sources. The majority of this energy was generated by individuals adding solar panels on their roofs.

Small-scale solar added more than 3 GW of new capacity in 2020 to record its fourth-straight record-breaking year, Clean Energy Australia has reported.

The large-scale sector contributed just 2 GW of new capacity with 32 projects completed around the country in 2020, however a further 76 large-scale wind and solar projects are currently under construction, representing more than 8 GW of new capacity, Clean Energy Australia’s latest report highlights.

Approximately 50GW of new renewable capacity and 20GW of storage capacity will be needed by 2050 to replace the existing fossil fuel fleet and reach Australian decarbonisation targets, according to forecasts by Aurora Energy Research.

Despite the lack of Federal Government support for the energy transition, an acceleration of the transition from fossil fuels to renewables is happening, as evidenced by recent major energy utility announcements in early 2022. Notable among these announcements was AGL Energy’s announcement to bring forward to closures of the Bayswater and Loy Yang A power stations, and Origin Energy’s call to close Eraring Power Plant, the country’s biggest coal-fired power plant, seven years earlier than previously planned.

Accelerating coal retirement will require a 40% increase in annual renewables deployment over the next 10 years Australian Energy Market Operator data shows.

Through its investment in Atmos Renewables, Igneo Infrastructure Partners is well positioned this year and beyond to deploy capital quickly into the region as the investment in renewable power generation accelerates.

Igneo will use its experience and deep knowledge in different regions to play an important role in the world’s renewable energy transition.

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