Capital and technology stand to gain
The UAE is a source of some of the largest project opportunities globally but importantly is seen as a hub for global capital deployment and innovation
The year 2016 is shaping up to be a year of market disruption across global energy markets, and those leading in renewable energy deployment, capital investment and technology innovation stand to gain. We expect to see some key highlights in the renewables sector, such as onshore wind being deployed in Europe on a nonsupported basis, the increasing dominance of solar particularly in new markets, new financing models being utilised which will further bring down the cost of capital, making renewables even more cost competitive, and the continued deployment and development of storage technology and associated software technology. The cost curve for battery storage is expected to mirror that of silicon.
Staying on the storage theme, mature and less developed markets are realising the potential of storage particularly in the context of offgrid solutions. It is now broadly accepted that traditional utility and national grid infrastructure models will change as the need for utility scale power production and national transmission become less relevant in technologically advanced markets which are able to aggregate power production and storage by creating virtual power plants able to operate on a much smaller individual, but larger aggregated, scale.
We should also not underestimate the impact the maturity of certain core renewable energy technologies such as onshore wind, solar, hydro, geothermal and biomass will have. First, the market’s acceptance of this maturity is enabling primary and secondary capital in renewable energy to be recycled far more effectively, which has the potential to create more attractive exit pricing as institutional investors are able, and have the appetite, to engage at earlier stages than previously. This in turn is encouraging the continuation of expert developers on an international level, allowing them to participate where they can add most value in the project life cycle whilst exiting to allow other equity to participate.
With maturity comes a greater understanding by the key participants of what markets need to offer in order to create bankable and marketable environments for renewable energy deployment and investment. Maturity is also bringing a greater understanding of how challenges and risks can be managed or avoided.
But this is also helping the market adjust and find solutions to some of these challenges including around political risk, currency liquidity and bankability of development assets.
The renewable energy sector has many strengths, but in my view its key strengths are its ability to innovate and adjust. It is nimble. It has had to be because core markets have closed quickly even after investments have been made and new markets are emerging all the time. It has, and rightly so, been under constant pressure to reduce cost and the sector has responded not only by reducing the cost of technology but also by adopting new models to bring its cost of capital, development and construction down.
And playing a key role is the Middle East and in particular the UAE. The UAE is now not only seen as a source of some of the largest project opportunities globally but importantly is seen as a hub for global capital deployment and innovation. Some of the leading development and investment teams in our sector are now based here.
My view is that 2016 will be the year we look back on as the year in which our market changed for good and for the good.