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Why is Private Equity Shining with Renewable Energy?

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Private Equity and Strategic Investors are always looking for the next big opportunity. You analyze trends, evaluate risks, and try to determine where the smart money is going. For decades, oil and gas were considered a safe bet. They powered the world and drove massive profits. But times are changing. Renewable energy is on the rise, and investors are taking notice.

“A new clean energy economy is emerging. There has been a substantial increase in clean-energy spending in a short period of time-I would consider this to be a dramatic shift”

(Faith Bristol, Executive Director of the International Energy Agency)

A total of $1.7 Trillion Dollars will be spent on Clean Energy projects this year. Private Equity investment in renewable energy and cleantech surged to over $26 Billion Dollars in 2022.Solar and wind are outpacing fossil fuels for new power generation. As costs have plummeted, renewables have become more economically viable. Forward-thinking investors see the writing on the wall. They understand that the future is green. Renewable energy is poised for massive growth, while oil and gas face an uncertain future.

The choice is clear. Do you want to cling to the past, or invest in the technologies of tomorrow? Renewable energy is the future, and the smart money is following the trend. If you haven’t already, it’s time to start shifting your investments to renewable energy. The oil age is ending, and green energy is just getting started.

The Economics of Renewable Energy Are Improving

As an investor, the economics of renewable energy are becoming increasingly appealing. Costs of solar and wind power have declined dramatically in recent years, making them cost competitive with fossil fuels.

•The cost of solar panels has dropped over 80% since 2010. Solar is now the cheapest source of new electricity in many parts of the world.

•The cost of wind power has also fallen by around 50% over the last decade. According to Lazard, a leading financial advisory firm, wind and solar are now the two cheapest sources of new electricity generation in the U.S.

•Battery technology improvements and cost declines have made renewable energy storage possible, allowing solar and wind to provide power even when the sun is not shining and the wind is not blowing.

•Government policies like tax incentives, rebates, and renewable energy targets have also helped drive growth in the renewable energy market. Over 150 countries have renewable energy targets and policies in place.

•There is increasing recognition that climate change poses huge economic costs and risks. Investing in renewable energy mitigates these costs and risks. A transition to renewable energy could save the global economy trillions of dollars according to some estimates.

The improving economics of renewable energy, combined with growing climate change concerns, have led many investors to pivot away from fossil fuels in favor of more sustainable energy sources with promising growth prospects and financial returns. The rise of renewable energy seems poised to accelerate in the coming decades.

Government Policies and Incentives Are Supporting Renewables

  • Tax incentives like the Investment Tax Credit (ITC) and Production Tax Credit (PTC) in the U.S. reduce the cost of renewable energy projects and generation, spurring development. The ITC offers a tax credit for solar and geothermal systems, while the PTC provides tax credits for wind and other technologies.
  • Renewable portfolio standards (RPS) require utilities to source a certain percentage of electricity from renewables. As of 2021, 29 states have mandatory RPS and 8 states have voluntary goals. RPS stimulate demand and fund new renewable projects.
  • Feed-in tariffs guarantee renewable energy producers a fixed price for the electricity they generate and feed into the grid. Governments offer long-term contracts for energy from renewables like solar and wind. This incentive reduces risk for investors and accelerates adoption.
  • Competitive procurement encourages renewable development through auctions and tenders. Governments solicit bids for renewable energy and award long-term power purchase agreements to the lowest bidders. This market-based mechanism has significantly reduced costs.
  • Bans and targets for fossil fuels are also driving the transition to renewables. Some countries have banned oil-fired power plants and coal mining or set targets for phasing them out. This policy-driven shift is propelling investments in solar, wind and other alternative energy sources.

With strong government support through financial incentives, mandates and policy changes worldwide, renewables have become increasingly attractive investments compared to oil and other fossil fuels. Policy actions are catalyzing the global energy transition to sustainable, low-carbon power.

Technological Improvements Are Driving Down Costs

Technological improvements in renewable energy generation and storage have significantly reduced costs, enabling renewable energy to compete economically with fossil fuels.

Smart Grids and Digital Technologies

Modernization of electrical grids into “smart grids” with advanced meters, sensors, and software has enabled greater integration of renewable energy. Smart grids can instantly respond to changes in renewable energy supply and demand, routing power efficiently where it’s needed. They also provide utilities with more insight into the performance and costs of renewable energy systems.

Overall, technological progress in renewable energy and related technologies has significantly improved performance and lowered costs. These cost reductions and performance improvements have allowed renewable energy to become a formidable competitor to fossil fuels, even without subsidies or policy support. For investors, the falling costs and increasing competitiveness of renewable energy signal a historic opportunity.

Investor Confidence in Renewables Is Growing

Investor confidence in the renewable energy sector has been steadily growing as the technologies have improved, costs have declined, and concerns over climate change have intensified. Renewable energy is seen as the future by many investors.

Renewable energy sources like solar and wind are abundant, free, and environmentally friendly. As the costs of solar panels and wind turbines have plummeted over the last decade, renewable energy has become an increasingly attractive investment. According to Bloomberg New Energy Finance, global investments in clean energy rose to $332.1 billion in 2019, surpassing fossil fuels for the fifth year in a row.

 Many major investment firms have pledged to divest from fossil fuels in favor of renewable energy. For example, BlackRock, the world’s largest asset manager, announced plans to make sustainability central to its investment decisions. This trend is expected to accelerate in the coming years.

  • Renewable energy investments are seen as a growth industry with strong long term prospects.
  • Fossil fuel investments are riskier due to volatile oil prices and the possibility of assets becoming stranded.
  • Younger investors, in particular, prefer to invest in ethical companies focused on environmental and social impact. Renewable energy checks these boxes.

Government policies and incentives are fueling the rise of renewables. Many countries have implemented tax credits, subsidies, and renewable energy targets to spur growth in the sector. In the U.S., the solar investment tax credit has been instrumental in the expansion of solar energy. The European Union’s emissions trading system has also made renewable energy more competitive.

The transition to clean, renewable energy is underway. For investors seeking stable returns and a clear conscience, the renewable energy sector offers an attractive opportunity. While the oil and gas industry will still play a role for decades to come, renewables are poised to make up an increasing share of the world’s energy mix. The investors putting their money behind renewable energy today may very well end up on the right side of history.

Oil Is Seen as Riskier and Less Ethical

As oil investments become riskier and face more scrutiny, investors are increasingly attracted to the stability and ethics of renewable energy sources.

Volatility and Uncertainty

The oil industry is prone to market volatility from geopolitical events, natural disasters, and other factors that can quickly disrupt supply and demand. This volatility translates into uncertain profits and investment returns. In contrast, the cost of renewable energy technologies like solar and wind has declined dramatically in recent years and is now cost competitive with fossil fuels. Investments in renewable energy projects often come with long-term, fixed-price power purchase agreements that provide stable, predictable returns.

Environmental and Social Governance

There is growing pressure from shareholders, regulators, and the public for companies and investors to consider environmental, social and governance (ESG) factors. The oil industry scores poorly on ESG due to pollution, carbon emissions, and the impact of climate change. In contrast, renewable energy investments are well aligned with ESG principles and sustainable business practices. For investors, renewable energy projects are an opportunity to gain ESG exposure and meet sustainability goals.

Policy Support

Government policies strongly support the transition to renewable energy and a low-carbon economy. There are tax incentives, grants, and other subsidies available for renewable energy projects. In contrast, the oil industry faces the prospect of increased regulation, carbon pricing, and policies aimed at curbing emissions and discouraging the use of fossil fuels. For investors, policy support makes renewable energy an attractive area for long-term investment. The sector is poised for growth as countries around the world work to cut emissions and combat climate change.

While oil has been central to the global economy for decades, it is now seen as a risky and ethically questionable investment by many. In contrast, renewable energy sources like solar and wind are stable, sustainable, and strongly supported. For these reasons, investors are increasingly ditching oil for greener opportunities in renewable energy.

The Effects of Climate Change Are Too Dire to Ignore

The effects of climate change are becoming too catastrophic to ignore. As global temperatures rise, extreme weather events are increasing in frequency and severity, sea levels are rising, and natural disasters are displacing millions of people.###

Investors are realizing that the fossil fuel industry’s days are numbered. According to a recent report, investments in renewable energy are now outpacing investments in oil and gas companies. This trend is expected to accelerate as countries transition to clean energy and implement policies limiting emissions.

Renewable energy sources like solar and wind are abundant, cheap, and environmentally friendly. Solar and wind farms can be built almost anywhere and don’t require the massive infrastructure of coal plants or oil refineries. The cost of solar panels and wind turbines has declined by over 80% in the last decade, making them cost competitive with fossil fuels.

In contrast, oil is a finite resource that requires expensive and polluting methods to extract and refine. As oil fields are depleted, companies have to drill in remote, ecologically sensitive areas or use controversial methods like fracking to access hard-to-reach reserves. These techniques are unpopular, heavily regulated, and threaten the environment.

Climate change is an existential crisis, and business leaders recognize the need for swift action. By divesting from fossil fuels and investing in renewable energy and green technology, investors can drive real change while positioning themselves for future success. The transition to clean energy is inevitable, and those who get ahead of the curve will benefit the most.

Overall, the rise of eco-friendly renewable energy coupled with the dire effects of climate change have made oil and gas companies risky and unethical investments. Investors would be wise to ditch fossil fuels and put their money into sustainable sources that will power the green economy of the future. The planet will thank them for it.

Renewable Energy Has Significant Growth Potential

Renewable energy sources like solar and wind have significant potential for growth in the coming decades. As technology improves and costs decline, renewable energy is poised to expand rapidly.

Cost Competitiveness

The cost of solar panels and wind turbines has dropped dramatically in recent years. Solar panel costs have fallen over 80% since 2010, and the cost of wind energy has fallen by about a third over the same time period. As costs continue to decline, renewable energy will reach price parity with fossil fuels like coal and natural gas. Once renewable energy achieves cost competitiveness, its adoption should accelerate rapidly.

Energy Security

By diversifying energy sources, renewable energy improves energy security and independence. Rather than relying on fossil fuels from unstable regions, countries can produce their own renewable energy domestically. This reduces vulnerability to geopolitical events that could disrupt fuel supplies.

Environmental Benefits

In contrast with fossil fuels, renewable energy produces little to no greenhouse gas emissions or air pollution. By transitioning to renewable energy, countries can significantly reduce their carbon footprint and mitigate the effects of climate change. As environmental concerns mount, policymakers and investors are likely to favor renewable energy over high-emission alternatives like coal and oil.

New Technologies

Advances in renewable energy technologies will drive further cost reductions and efficiency improvements. For example, perovskite solar cells and high-altitude wind energy show promise for improving the affordability and productivity of solar and wind power, respectively. With continued innovation, renewable energy should become an increasingly compelling choice for investors and utilities.

Overall, renewable energy exhibits strong potential for growth due to its improving cost-competitiveness, enhancement of energy security, environmental benefits, and emerging technologies. While the oil industry has dominated for decades, renewable energy appears poised to attract increasing investment and fuel the energy systems of the future. By diversifying into renewable energy, investors can position themselves to benefit from this transition.

Major Companies and Countries Are Transitioning to Renewables

Major companies and countries are transitioning to renewable energy sources like solar and wind power. This move away from fossil fuels is driven by economics, public opinion, and a desire for energy security.

Companies See the Economic Potential

Forward-thinking companies realize the long-term economic benefits of renewable energy. Technology costs have declined dramatically, making solar and wind power cheaper than coal and natural gas in many areas. Investing in renewable energy infrastructure now will pay off for decades to come and provide a hedge against volatile fossil fuel prices.

Public Support for Renewables is Growing

Citizens around the world increasingly support government policies and companies focused on renewable energy and sustainability. People understand that transitioning from fossil fuels to clean, renewable energy will mitigate climate change, reduce pollution, and provide energy security. Companies that fail to take action risk damaging their brand and losing customers.

Countries Aim for Energy Independence

Many countries rely heavily on imported oil and natural gas, leaving them vulnerable to supply disruptions and price spikes. By transitioning to domestically-produced renewable energy, countries can gain energy independence and security. For example, China now leads the world in solar panel production and has enough solar capacity to power its largest city, Shanghai. Morocco will soon get over half its electricity from solar and wind. Costa Rica already runs on over 95% renewable energy.

Major oil companies like BP and Shell have invested billions in renewable energy projects and technologies. Google, Amazon, and other tech giants also invest heavily in wind and solar to power their data centers and operations. While the transition is happening gradually, the pace is accelerating. The companies and countries that move fastest to adopt renewable energy will be best positioned to thrive in a low-carbon future. Overall, the rise of renewable energy is a trend that will only continue to grow.

Conclusion

As an investor, the choice is clear. The renewable energy sector is primed for massive growth, while oil investments face an uncertain future. By putting your money into solar, wind and other renewable sources, you are not just investing in the energy of the future, you are investing in a sustainable planet. You have the opportunity to be on the right side of history and support technologies that will power our world for generations to come. While oil may have been the energy of the past, renewables are the energy of now and the future. The rise of renewable energy is here, the smart money is shifting, and the time for investors to act is now. The choice is yours. What kind of world do you want to invest in? One powered by the fossil fuels of the past, or one powered by the renewable energy of the future? The answer seems clear.

Edward Sklar
Edward Sklar
Edward Sklar
Mergers & Acquisitions,Business Broker/Valuation/Due Diligence/Real Estate/Sales/Business Development/CEO/President/Managing Partner/Chief Operating Officer

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