Published: November 10, 2023
Despite capital constraints and permitting bottlenecks, demand remains high for the renewables sector, according to the alternative energy investment firm Ecofin.
This is not an easy time for the renewables market. While by some measures (not least the increase in public support), the industry is ready for takeoff, it has been buffeted by challenges over the last few years.
Many companies engaged in the renewable business have been faced with project delays, rising equipment costs, poor transmission infrastructure, policy uncertainties, and hold-ups in their permitting process. What’s more, developing these utilities is highly capital-intensive, which is problematic against a backdrop of rising interest rates.
Michel Sznajer, portfolio manager and managing director at Ecofin, admits that the interest rates are a headwind for the sector. “There is so much growth, especially in Europe, because Europe wants to decarbonise and reduce its dependence on natural gas,” he tells EMEA Finance. “However, to fund that growth you need access to capital, which is now more expensive. The cost of equity has gone up substantially and the cost of debt keeps rising.”
Despite this roadblock, Sznajer remains optimistic about the outlook for renewables. Earlier this year, he and fellow portfolio manager Matt Breidert argued: “strong demand and attractive returns should continue to fuel the growth and value creation in the sector.” Sznajer stands by that statement, remarking that, even with the current constraints on capital, the returns on the projects themselves remain appealing to investors.
“Power purchase agreement (PPA) prices have moved up over the past year to reflect the higher cost of debt and equipment,” he points out by way of example.