Higher cPPA appetite unlocks renewable projects European and Asian industrials facing a second energy price crisis in 4 years will resuscitate PPA appetite. Higher power prices and volatility both support PPA demand, unlocking stranded solar and wind developments across Europe.
C&I Focus Industry will also respond to higher energy prices by approving investments in efficiency, flexibility, electrification, and private wire renewables. These make C&I a natural domain for infrastructure and VC investment.
Gas lifts BESS BESS revenues have always tracked the gas prices that set the upper boundary of wholesale prices (ie arbitrage). So expect a simultaneous recovery in BESS earnings, and potentially in offtake pricing too. A pattern of weak BESS earnings revived by periodic spikes looks increasingly like the mode, not the exception.
Merchant tails were a source of pain as cannibalisation bit. For now they are a source of delight and not angst.
Supportive policy tweaks For the first 25 years of my career, no nation dared cross two rubicons of energy supply: 1) Russian gas supplies to Europe, 2) the Straits of Hormuz. Both have been crossed in 4 years, reshaping energy policy. For example, five countries recently disconnected their power grids from Russia, making Baltic BESS a hot spot. Economic dependency, and exporting foreign currency to antagonists, make scant sense when cheaper domestic energy sources are available. Climate action is now security action. The resulting policy tweaks may not prove dramatic but they will support energy transition investment, and potentially arrest the backsliding.
Nuclear revival Nuclear is not an economic solution. It’s a strategic solution. And another energy crisis reminds us of strategic value. Nuclear could be the single largest beneficiary.
Elevated interest rates Higher interest rates impede infrastructure investment, economic forecasts, bloated private credit markets and other macro factors which shape us. None of these impacts is positive.
Utility pain The last gas price crisis sent several utilities and energy suppliers to the wall. The first disclosures (macro hedge funds) include some staggering monthly losses. Market participants should now be more robust, but there will be pain, at a time when utilities were becoming increasingly central to BESS, solar, wind, and cleantech exits, following the retreat of oil companies.
So this fresh reminder of the folly of fossil fuels will bring mixed impacts. Their severity will depend on duration: how long oil / gas prices are elevated by the conflict (which may not correlate with the conflict’s own duration).
