Pay­ing for Power

Who pays to up­grade the elec­tric­ity sec­tor in a chang­ing mar­ket?

Alberta Oil - - SMART MONEY -

As Canada’s util­ity sec­tor re­news

many of its decades-old fa­cil­i­ties, stake­hold­ers are find­ing that to­day’s fi­nanc­ing mod­els are a lot dif­fer­ent from when they first pow­ered up.

Many power plants are from the ‘60s and ‘70s or, in some cases, nearly a cen­tury ago, and are near­ing their best-be­fore dates. Up­dat­ing them to han­dle mod­ern ca­pac­ity re­quire­ments has jump­started a new era of re­fur­bish­ments, retrofits, and re­new­able strate­gies. In turn, these have brought new play­ers, risks, and emerg­ing tech­nolo­gies into the fold.

New tech­nolo­gies have opened the door to pri­vate sec­tor prod­ucts and services that were ex­clu­sively han­dled by util­i­ties in the past. So, in­vest­ments in the grid de­liv­ery sys­tem and gen­er­a­tion fa­cil­ity re­fur­bish­ments must be con­sid­ered when de­cid­ing what gets built, who does the build­ing, and how it will all be fi­nanced.

Over the last decade and a half, the in­dus­try has fo­cused on bring­ing re­new­ables into the mix and, in many cases this meant in­volv­ing con­trac­tors. Over time, how­ever, the mar­ket be­came more com­modi­tized and fi­nanc­ing mod­els adapted to be­come more ef­fi­cient. Banks dealt in long-term con­tracts, and in­sti­tu­tional investors were at­tracted to the yield and its fu­ture po­ten­tial.

Now comes the el­e­ment of dis­trib­uted gen­er­a­tion: rooftop set-ups and net me­ter­ing tech­nolo­gies that give home­own­ers and busi­nesses the means to gen­er­ate small in­cre­ments of en­ergy into the grid and take it back out when they need it. There is also a need for grid in­vest­ments in wires, sys­tems and ca­pa­bil­i­ties that re­flect a broader range of in­puts and more gran­u­lar ca­pa­bil­i­ties around de­ploy­ing data an­a­lyt­ics and man­ag­ing more dy­nam­ics in the sys­tem. So who fi­nances that? Who owns the equip­ment? Now that we’re deal­ing with small elec­tric­ity providers and in­stall­ers, is fi­nanc­ing re­quired for the in­stal­la­tion or for pro­vid­ing ag­gre­gated services and prod­ucts to the grid?

For some lenders, the an­swer lies in ag­gre­ga­tion fi­nanc­ing mod­els. They’re look­ing to things like rooftop services and de­ter­min­ing if com­po­nents such as in­stal­la­tion, prod­ucts, or even services can be stan­dard­ized to the point where they can be taken in small in­cre­ments, made big­ger, and then fi­nanced to home­own­ers through or­ga­ni­za­tions that ag­gre­gate home­own­ers’ in­ter­ests, or to util­i­ties who want to of­fer in­duce­ments and sub­si­dies for home­own­ers or busi­nesses.

The fu­ture of fi­nanc­ing may very well be about work­ing on smaller el­e­ments that scale in ag­gre­ga­tion. Fi­nanc­ing mod­els need to evolve to sup­port a struc­ture of smaller in­cre­ments and tech­nolo­gies that fa­cil­i­tate this new “give and take” paradigm.

Ca­pac­ity growth is fu­eled by four main fac­tors: eco­nomic growth, re­fur­bish­ment re­place­ments, new sys­tem needs, and the in­ten­sity of new elec­tri­cal ap­pli­ca­tions in in­dus­trial or trans­port sec­tors.

We’ve al­ready seen eco­nomic growth fuel de­mand in West­ern Canada where, prior to the oil crash, Al­berta had one of North Amer­ica’s fastest growth rates and to­day is con­vert­ing from its car­bon-based sys­tem. In B.C., nat­u­ral gas de­vel­op­ment and other in­dus­trial en­ergy-in­ten­sive ac­tiv­i­ties could drive growth.

De­mand is grow­ing from coast to coast, and as our util­i­ties evolve to meet it, we can ex­pect new col­lab­o­ra­tions and fi­nanc­ing mod­els to light the way.

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