COVID-19: Private Markets Impacts - Renewable Energy
Updated: Sep 14, 2020
Strategies to ride out the COVID-19 storm or exploit its consequences
The COVID-19 crisis’ operational, pricing and origination impacts on:
in conjunction with
Energy pricing volatility will impact assets with market/merchant pricing exposure, reflecting for some time perhaps lower oil and gas pricing (and to the extent that local/national energy pricing markets are driven by these factors).
For assets with government underpinned revenues, this is typically substantially less of a factor, and such assets are expected to prove their worth during any extended downturn.
Assets with corporate take-and-pay contracts will also typically prove more robust than those with purely or predominantly merchant power pricing exposure (subject to the nature and evolving credit risk of the offtaker).
Sizeable partnerships with multiple Operations & Maintenance partnerships will prove to be valuable in protecting cashflows.
Safety and maintenance remain paramount issues, with energy sector workers deemed key workers in most countries. However, some impacts of social distancing in specific markets (eg Italian regulations regarding team sizes and travel/site entry permits) are proving greater inhibitors to full efficiency.
Quality of remote monitoring tools are critical to optimising maintenance, with predictive and/or other early warning algorithms proving valuable in such circumstances to enable critical resource focus.
Some manufacturers have announced supply bottlenecks for spare parts, mainly relating to large components.
Stresses are being seen at local level in terms of employing overseas workers, and in technical completion signing off delays, but these are not yet material.
Heavy equipment orders which by size stress the balance sheets of suppliers are one area for further focus.
Some manufacturers will undoubtedly hit supply bottlenecks for new parts as manufacturing capacity or raw material shortages impact, particularly in the short term, or for international suppliers to the extent shipping / transportation is involved cross-border.
Some European solar projects in construction and dependent on Chinese PV panels have slowed down or halted. Where this occurs, developers are pressuring politicians to extend implementation deadlines.
New Asset Origination
Origination remains steady but due diligence is somewhat more challenging short term, although site inspections can still be planned reasonably easily.
A small premium is developing for existing approved and this is expected to persist for perhaps up to two years.
Utilities remain under pressure and balance sheet reviews are no doubt underway. This should lead to a continued healthy supply of opportunities.
In this video the Octopus Renewables team cover in more detail the COVID-19 crisis' impact on the renewable energy sector.