Growth in renewable energy sector set to continue

21 Aug 2015

Global investment in the renewable energy sector has grown significantly over the last decade, reaching $US311.4 billion in 2014.

New technologies and financing structures have helped lower the delivered cost of energy to consumers.

The asset class is also known for its ability to maintain stable long-term returns, partly due to low operating costs which are not subject to the fuel price fluctuations experienced in traditional thermal generation projects.

While the renewables market was historically seen to have a high upfront capital expenditure, it is now relatively inexpensive to build wind or solar energy projects in the US and abroad.

According to a report published by Bloomberg New Energy Finance in March 2015, the levelised cost of energy of certain onshore wind projects is now lower than comparative natural gas-fired generation plants when long-term operating and financing costs are taken into account.

Recent growth in the sector within the US has also been driven by an innovative financing vehicle, known as a YieldCo structure. A YieldCo is a publicly listed company which bundles both renewable and conventional energy long-term operating assets in order to ensure predictable cash flows and pays a growing dividend to shareholders.

These companies own predominantly wind and solar projects in OECD markets, although some also own traditional contracted gas-fired generation projects.

The emergence of the YieldCo, which can raise public equity capital at more competitive cost than traditional private capital, has further reduced the cost of renewable energy and increased investor awareness of the value of renewable assets.

Despite the recent sustained growth in the sector, uncertainty remains around the expiration of US tax credits at the end of 2016 as well as lower oil prices. However, other markets around the world experiencing systemic generation shortages and high electricity prices are starting to embrace renewable projects.

Overall, the growth outlook for the industry remains positive. Macquarie’s deep understanding of the renewables sector, combined with its access to capital markets and principal investment capabilities, means the firm is ideally placed to assist industry participants.

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