“Fierce” competition among downstream renewable energy companies has been putting downward pressure on project returns throughout 2016, according to a recent analysis by Mercatus Investment Lifecycle Management.
One major result, the report says, has been a slowdown in the overall rate of global investment into renewable energy, due to shrinking returns. Second, downward pressure on power prices expanded the demand for renewable energy, creating record-breaking capacity additions, while outcompeting traditional fossil fuel and nuclear capacity additions worldwide.
Taken together, the decoupling of investment and capacity growth indicates that capital is being cycled more efficiently than ever before, the analysis concludes.
In somewhat greater detail,
• Declining technology costs, combined with market pressures amounted to a supply side shift, reducing the overall price of renewable energy power while expanding demand, especially in new geographic market segments.
• The cost reductions associated with renewable energy technologies mostly benefit energy consumers as off-take rates reached record lows, indicating that competition among downstream energy companies is putting downward pressure on the price of energy.
• Lower costs and tighter margins has meant that capital invested in renewable energy technologies in 2016 was cycled more efficiently, with more MW/$ invested coming online than ever before.
• Lower power prices have made renewable energy projects increasingly competitive with traditional fuel sources, expanding the quantity of energy demanded.
• Demand for renewable energy is emerging from new segments – most prominently corporate investors and off-takers.
• Despite political changes in the United States in 2016, renewables remain on a growth trajectory due to declines in prices.
• Energy companies continue to diversify their development into new geographies and technologies.
• Tighter gross margins with greater market demand underscore the need for downstream
energy companies to maximize operational efficiency.
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