News on renewables in the past week has been overshadowed by Brexit and Tesla’s deal with SolarCity.
In the case of Brexit, BNEF analysts wrote that the UK’s decision to leave the European Union may appear to have few direct implications for clean energy or the power market, but it is likely to have important indirect effects – via changes to the country’s political leadership and via the expected setback for the UK economy. See the full Analyst Reaction here.
Meanwhile, also stirring some controversy, was Elon Musk’s proposed marriage of Tesla Motors and SolarCity. Tesla and SolarCity are both led by Musk, who is chief executive officer of the electric-car maker and chairman of the solar company.
Musk, the largest shareholder of both companies, said he and Antonio Gracias, who is also a member of both boards, will recuse themselves from voting on the takeover offer. The all-stock deal is worth $26.50 to $28.50, or a premium of 21% to 30% from the 21 June closing price, Tesla said.
If the deal is approved, SolarCity would become a unit of Tesla. It’s already part of the family: SolarCity CEO Lyndon Rive and co-founder and Chief Technology Officer Peter Rive are Musk’s first cousins. The three of them hatched the idea for SolarCity during a trip to the Burning Man arts festival in the Nevada desert more than a decade ago.
“Investors expect Tesla to keep all its focus on completing the gigafactory and on quickly ramping up production of Model 3 in 2018. Both of these goals are existential for Tesla. A SolarCity acquisition doesn’t help execute these critical milestones.” BNEF analysts said. Read BNEF’s Research Note on “an awkward family reunion” here.
But behind the scenes, other news has been happening. Italy’s Enel drew attention again this week when it said it’s considering a bid for Brazil’s AES Eletropaulo, as the company continues its shift away from traditional fossil-fuel power plants to focus on renewable energy and distribution.
Enel is seeking to expand in Brazil, especially in power distribution, Chief Executive Officer Francesco Starace said in an interview 21 June at Bloomberg’s headquarters in New York.
The move is part of Starace’s efforts to transform Enel after becoming CEO in 2014. He’s closing coal plants and said the Rome-based company won’t build any more large power projects that take at least five years to build. Instead, he’s looking at renewable energy and distribution companies in Brazil. Enel lost a bid last week to acquire another AES unit after the Brazilian utility CPFL Energia agreed to pay $464m for AES Sul, which operated in Rio Grande do Sul state.
“The valuations are really finally getting to the right level,” Starace said. “We participated in the Rio Grande do Sul transaction. We didn’t win this one. Now there is Eletropaulo coming, there’s a lot of distribution coming. We’ll be trying again.”
Eletropaulo is Brazil’s biggest power distributor, delivering about 10% of the nation’s electricity, according to its website. It has rights to provide power in 24 municipalities in the Sao Paulo metropolitan region.
In funding news, Equis Pte, a Singapore-based infrastructure investor, plans to pump $1bn into Indian renewables in the next two years, doubling its portfolio to nearly 2GW of wind, solar and hydro energy installations, Chief Executive Officer David Russell said.
Equis, a $2.7bn fund, has 3.6GW of combined renewable energy capacity in India, Japan, the Philippines and Thailand. The asset developer has approved equity commitments of $630m to India in the last four years.
Equis has financed 737MW of Indian renewables, with 300MW under development. The company commissioned a 108-MW wind project in the central Indian state of Madhya Pradesh this month, at an investment of $131m.
The majority of Equis’ renewable energy projects, including those in India, have been financed with 100% equity, with the company carrying out construction and development on its own, Russell said.
Separately, the outlook for manufacturers in the wind sector continues to look positive, helped by the aging of long-established assets. Vestas Wind Systems sees a second wave of wind-power growth on the horizon as older turbines in mature markets are replaced with newer models.
Replacements could drive as much as much as 5GW of annual sales, according to Juan Aratuce, the chief sales officer at the Aarhus, Denmark-based manufacturer. Vestas told investors at a meeting today in London that the so-called “repower” market to replace old turbines may be one of its biggest opportunities.
“As this industry matures, with the growing installed base, we will have a replacement cycle kick in that we currently don’t really have,” said Chief Executive Officer Anders Runevad in an interview Tuesday in the UK capital.
Wind turbine are usually sold with a guarantee that they’ll generate electricity for 15 to 20 years. Because the industry is so new, few of the machines have hit the end of their operating lives. Of the world’s 424GW of installed wind power, 355GW came online in the last decade, according to Bloomberg New Energy Finance.
And turbines continue to get bigger. LM Wind Power rolled out the world’s longest wind turbine rotor at 88.4 meters (290 feet) which also has the strength to carry 10 elephants. The rotor, requested by Adwen Offshore due to its capacity to produce 8MW of power, will be tested in Denmark before commercial production as early as 2018. The rotor is only intended for offshore use, with the capability of moving 300km (186 miles) per hour. See BNEF’s New Energy Outlook 2016 Wind report here.
At the end of last week, alarm bells may have been ringing for gas drillers in Europe. In Germany, Chancellor Angela Merkel’s coalition is set to ban shale gas fracking, passing legislation in parliament on June 24 that will end years of discussion over whether the nation should follow the US in launching a boom in drilling.
Merkel’s coalition of Christian Democrats and the Social Democrats will use their majority to amend natural gas extraction rules, in effect banning the unconventional method of tapping oil and gas deposits not reachable with traditional methods, according to a draft bill obtained by Bloomberg News. Conventional fracking that doesn’t involve extraction from shale may be continued to be practiced under strict rules, the draft shows.
The lawmakers moved quickly after a report that companies such as Exxon Mobil and Wintershall, which sought licenses for exploration, were preparing to move ahead. As long ago as 2014, Merkel’s coalition prepared a mining amendment that would allow shale fracking below 3,000 meters under certain geological conditions. The government wanted the companies to hold off on projects until after the amendment was passed.
Industry is looking for ways to curb electricity prices, which are higher than in the US Germany draws just 5 percent of its annual natural gas usage from its own sources, mainly from conventional drilling in Lower Saxony.
Meanwhile, Germany is offering incentives for cleaner transport, giving tax breaks to consumers and employers who adopt electric vehicles. This will boost Chancellor Angela Merkel’s plan to increase EV sales, with 4,000-euro cash bonuses for electric car consumers and 3,000 euros for hybrid purchasers. The plan includes exempting new all-electric cars from vehicle tax for 10 years and giving tax breaks to employers if they set up battery chargers at the workplace. Last year only 12,000 electric cars and 33,000 hybrids were sold in Germany compared to the 3.2m new registrations in total.
Rapid increase in popularity of renewable energy auctions worldwide
The amount of clean energy capacity awarded through auction mechanisms is set to increase considerably in the future, according to BNEF’s New Energy 2016 Outlook. The amount of capacity awarded so far via auctions in several countries is shown above.
Between 25 and 35% of annual clean energy capacity additions to 2040, excluding small-scale PV, will occur in countries with auction or tender policies in place today; and between 46 and 62% if China and Japan confirm plans to introduce this type of mechanism. Brazil and South Africa have emerged as clear champions of the auction process, with more than 12.3GW of onshore wind and 2.3GW of solar PV procured through auctions since 2006 in Brazil alone.
Written by Ben Vickers, Bloomberg New Energy Finance. With assistance from Ella Kennedy
