Market Analysis Insights
Despite healthy expected returns, finance-related challenges remain the largest barriers to renewable energy development, according to NREL's Renewable Energy Finance Tracking Initiative (REFTI).
Two recently released reports on solar and geothermal technologies show greater than 10% expected returns for both developers and tax equity investors. Yet roughly half of both geothermal and solar respondents (350 in total) reported financial issues (project economics, PPAs, creditworthiness, and raising capital) as the largest barriers to development. In light of this, only 11%-13% of respondents reported abandoning their projects.
Texas is an energy powerhouse. It dwarfs nearly every other state in total production on both a British thermal unit (BTU) and kilowatt-hour (kWh) basis. Yet the Energy Reliability Council of Texas (ERCOT) is reportedly facing a looming problem of shrinking capacity reserve margins thanks to peak electricity load growth outpacing new capacity additions.
Renewable energy-related asset securitization has been gaining a lot of traction lately as a number of key stakeholders from both the private and public sectors have been stepping up their collaborative efforts (including NREL's finance team).
Not long ago, continued growth of electricity consumption in the U.S. was as certain as population growth. With historical data trending upwards linearly, it would seem a fool's errand to arrive at any other conclusion. Yet I seem to recall a couple other major industries relying on extrapolation recently (real estate valuation ring a bell?), and we're nearly bankrupted as a result.
Unless you follow non-profit project finance closely, you likely haven't noticed a quiet, but rapidly growing trend in higher education. Amid rising energy costs and economic uncertainty, colleges and universities around the country are looking for ways to save on operational expenses through reductions in resource and energy consumption. Most efficiency measures, however, require initial cash outlays that can be hard to come by with cash-strapped budgets. So, many institutions are getting creative by setting up what's become known as a green revolving fund (GRF).
Anyone who's taken an economics course knows the fundamental advantages in economies of scale. But achieving lower costs through aggregated purchasing, standardized processes, and large sales contracts is easier said than done. This is especially true when the product is commoditized, cannot be stored, and pricing is not consistent across multiple markets.