Paying for Power
Who pays to upgrade the electricity sector in a changing market?
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.