Our client project work in 2020 provides a useful ‘cross section’ insight into current issues driving energy markets. The impact of Covid-19 has emerged as a key factor since Mar-20. But we have been surprised how little disruption Covid-19 has had on key structural trends. What has been the focus of our client engagements so far this year?
“Covid-19 has already started forcing investors to sell assets to access capital. This is set to gather pace across 2020-21.”
Battery investment: Strong pipeline of project development (UK leading, but NW Europe now following). Focus on PV co-location & investability of 2hr vs 1hr duration. Valuation & monetisation of wholesale/balancing revenue key to underpinning investment cases.
Flex offtake contracts: Terms & structure of offtake contracts for flex assets moving in favour of infrastructure investors. Margin floors, upside sharing, improving incentivisation/fee terms and even hybrid tolling structures.
Covid-19 exposed flex deficit: The big demand drop & increase in % renewable output is providing an insight into future market stress points & value drivers. There is an increasing focus on value from a flex deficit that will grow fast as coal, nukes & older CCGTs close.
Renewable diversification: Covid-19 is also flagging the increasing threat of price cannibalisation on wind & solar portfolio value. This is increasing focus on quantifying the value impact of battery & engine returns in diversifying renewable portfolio risk.
LNG portfolio value: Rapid growth in LNG portfolios is driving a requirement for more sophisticated portfolio value analysis tools. We are rolling out solutions to support investment, origination & commercial decision making across multiple large portfolios.
Decarbonisation of gas: Midstream gas asset owners & investors are focused on quantifying the value impact of new net zero carbon targets. Coal & nuke exits can actually strengthen the role of gas over the next 10-15 yrs after which key hydrogen vs electrification drivers dominate.
Distressed asset sales: Covid-19 has already started forcing investors to sell assets to access capital. This is set to gather pace across 2020-21. Distressed sales are driving value opportunities but not all of these are easy to price given market & policy uncertainty.