Can Gas Fill The Renewable Sector's Finance Gap?

Considering the pain being encountered by the wider energy sector, many see the current state of the Renewables as 'not that bad...or maybe 'not as bad as it could be'.
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Oct. 24, 2012 - PRLog -- It could be said that there are several layers of protective wrap on Renewables, however, finance is probably not one of them. Moving from 2010 to 2011 and into 2012, the sector faced rapid fire challenges with repealed FIT programs across Europe, as well as almost overnight repeals of some 'guaranteed subsidies'.

Despite the challenges, the mood at this past February's 3rd Annual Renewable Energy Finance and Infrastructure Summit in Vienna, was one of guarded optimism. Compared to the atmosphere surrounding strategic Oil & Gas events, one could even say REFIS (Renewable Energy Finance and Infrastructure Forum) was cheery. After all margins on Oil & Petrochemical products are historically tight, while the 'Golden Age of Gas' has proven to be more like bronze or even copper. Demand for natural gas in Europe has slumped, and the transition to a Low Carbon Economy seems like it will be put on ice.

With loses mounting for players across all sectors in Energy, investors and infrastructure operators are being forced to act upon the logical synergies between Gas and Renewables. That gas can and should back up renewables is clear to operators across countries like Spain, Portugal, Austria and Denmark that have moved beyond 20% mark of renewable penetration.

In fact it is not only Grid stability that underlies this connection but a strong correlation/symbiosis of price and capacity. This is becoming increasingly apparent in Germany, which has very developed Gas infrastructure and very high targets for renewable power deployment. The lesson for all is that power markets can easily strand/isolate very efficient generation plants based on increasingly powerful price mechanisms.

Utilities which have made significant recent investments into gas fired power plants are increasingly looking to partner, merge or acquire renewable capacity to cut losses, break even or hopefully to profit. For near to mid-term, profitability seems only in reach of this 'ultimate combination'. Reminiscent in many ways of the pairings 'to be' enabled by Smart Grid, binding these two sources of power together is at the very least, very smart. At a recent Gas Storage Event in Berlin, participants highlighted increasing purchases and leased capacity in Underground Gas Storage facilities in order to bring beneficial margins within reach.

But will we see this trend deepen in 2013? Bets in this direction look confident in Northern Europe, where renewables have passed 'critical mass', and where players are still able to place investments. While the technical need remains, the current impulse is not creation of an 'ideal' synergy between gas and renewables, but one of survival, where synergized assets create a more secure assessment of ROI.

Get feedback from experts like Eriks Atvars, Managing Director Global Head Power and Environment Project & Commodity Finance, at UniCredit and Joost Bergsma, Managing Director, BNP Paribas Clean Energy Partners at the 4th Annual Renewable-Energy-Finance and Infrastructure Summit, February 27th & 28th, Vienna – Austria.

While renewable energy 'purists' might criticize this trend, the reality is that significant growth in natural gas usage is certain. In the US, both public and private initiatives are ramping up fairly quickly. Paula Gant, VP of Policy with the American Gas Association, remarked that “abundant and affordable natural gas (doesn't) preclude the development of renewable energy in this country,”. Acceptance of this strategy is striking coming from the US, where gas prices are considerably lower than in Europe, and where domestic sources are plentiful. Even mid-large sized renewable businesses seem to accept this. Paul Detering, CEO of Tioga Energy, -a solar power company- said “working with the natural gas industry is a practical approach, particularly since energy storage technology has yet to become cost effective enough...“we can’t take the approach of ‘if I win then you lose’.

Exploring the business case across the Atlantic logically leads to the question of how increased cooperation will affect investments in Europe. With market stability critical to the investment outlook, and considerations for electrical grid stability as well, this issue is surely one to watch. Look for it as well as other  trends and innovations brought forward in response to 2012's bumpy ride. Join industry leaders from across Europe to take up this and other issues relevant to Europe's renewable finance future. Renewable Energy Finance and Infrastructure Summit, Vienna Austria, February 27th and 28th. 2012.

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