The Energy Transition

Through this current unprecedented international coronavirus crisis, we wish everyone through our community that they are staying safe and well. We want to take this time to reflect on the energy mix and the future trends going forward.

Dr Fatih Birol, Executive Director at the International Energy Agency (IEA) cited that “Electricity is more indispensable that ever”. Modern societies rely on electricity more than ever to power the tools we use to telework, internet shopping and online streaming for entertainment.

With oil prices at an all-time low level, and coal prices being one of the most expensive commodities as of right now (3/23/20), the views on the usage of renewable energy in the short-term is mixed. However the mid to longer term view of shifting towards cleaner sources of energy prevails.

The clean energy transition has taken major steps within the last 12 months. With solar, wind and hydropower projects continuing to develop at a rapid pace, renewable energy’s undeniable rise has had far more positive effects than first anticipated. From dirty energy retirements, geo-political involved presence over climate change and growth in corporate competition, there are an ever-increasing number of factors that have begun to significantly alter the shape of the energy employment market. It is now a matter of how, not if, businesses react.

There has been more investments into small-scale renewable projects, development plans and battery storage than ever before. The IEA have noted that solar, wind and hydropower projects are rolling out at their fastest rate in four years. And with $55.5 billion spent in the renewable energy sector in 2019, along with pricing volatility bought on by renewable energy, there are clear opportunities to be taken. A high number of portfolio management firms, with significant private equity backing, begun to aggressively enter the market acquiring both assets as well as seasoned traders to help develop new trading teams.

Renewable energy sources make up 26% of the world’s electricity today, but according to the IEA its share is expected to reach 30% by 2024. Renewables, including solar, wind, hydro, biofuels and others, are at the centre of the transition to a less carbon-intensive and more sustainable energy system

There is also little doubt that the renewable energy market continues to develop into a more sophisticated set up than its previous format. With the US renewables market less developed than that of Europe, a high number of firms have sought to take advantage and duplicate their success overseas. Besides a number of major European new market entrants, there are also significant SME sized merchant traders and utilities, who already have a US presence, that begun to branch into the new era of power and renewables trading.

These firms had previously been actively seeking originators from banks and major merchants to enhance their business development arm. However, with limited talent coming at a rich price, these firms have seek alternative measures. We have tracked seasoned power traders being brought into Chief Commercial Officer positions at portfolio renewable firms. Additionally, rather than train renewable energy originators to become risk takes, firms are opting to hire traditional power traders and develop their business development skillset to create a well-rounded and more entrepreneurial workforce.

Whilst a number of regions reacting to clean energy goals we anticipate a significant amount of hiring activity within the CAISO region, with a number of firms identifying this as an area of growth. Aside from the switch of volatility compared to the PJM market, CAISO has become a popular new avenue for established shops. Most recently, it developed regional day-ahead market for renewables and California is one of the more developed regions ISOs within solar energy. With recent carbon targets and renewable opportunities, 2020 will no doubt see a large increase in west power hiring.

In conclusion, the energy mix will continue to evolve and the transition towards renewable energy is progressing at a faster pace. The European power and renewable firms that share their sophisticated views in the US and look to increase market share will adjust the market landscape. Global private equity firms who invest into energy are evolving to create more diversified portfolios across the energy mix. We expect the trend of power traders and originators shifting towards renewables investing as the world changes and grows.

Sources

https://www.cnbc.com/2019/10/21/renewable-capacity-set-for-50percent-growth-over-next-few-years-iea-says.html
*https://www.theguardian.com/environment/2019/oct/21/renewable-energy-to-expand-by-50-in-next-five-years-report
*https://www.renewableenergyworld.com/2019/07/18/the-rise-of-clean-energy-and-the-slow-steady-death-of-coal/#gref
https://openlink.com/en/insights/articles/renewable-energy-trading-how-power-trading-operations-must-change-to-accommodate-increased-supply-intermittency/