New York — US power and natural gas investing is moving heavily toward renewable energy, while out-of-market support programs for renewables and other resources like nuclear power are challenging wholesale markets, utility executives and investment experts said Tuesday.
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I think utilities are headed toward regulated models with regulated operations and if they stray in the non-regulated space it's really going to be in the renewables business, Barry Perry, CEO at Canadian-based utility holding company Fortis, said during the S&P Global Market Intelligence Power and Gas M&A Symposium in New York.
"To have assets in merchant coal or nuclear power is going to be tough going forward I think," Perry said.
The other speakers on the executive strategic outlook panel largely agreed.
"Seventy-five percent of our business is regulated and the renewables business is not, but 72% of that is contracted," James Torgerson, CEO of Avangrid, said. Torgerson sees a point where people are de-risking their companies by getting away from pure merchant business models and going toward regulated contracted businesses.
Avangrid and part of Spain's Iberdrola Group and its renewables subsidiary is a 50% owner of Vineyard Wind, a US offshore wind development company.
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"We don't build a wind farm unless we get a contract," with utilities or hybrid entities like large corporates including Google, Amazon and "a bunch of others," Torgerson said. And he's also seeing a shift where utilities want to own renewables and put them in the rate base.
Participants on a panel about the state of US power generation agreed with the CEOs regarding the trend toward renewable energy resources and also highlighted the growing importance of energy storage.
"Our business has moved almost entirely to renewables ... which is driven by investor appetite and the number of transactions we see in the market is quite different than we see in the thermal market," said John Breckenridge, senior managing director and head of energy infrastructure at global asset management firm Capital Dynamics.
One of the main things Breckenridge's team is watching is what happens with energy storage. When you buy assets with a 10- or 15-year contract, you are thinking about what happens at the end of that contract and you have to have a view of what's happening with storage, he said.
FREE MARKETS QUESTIONED
Roger Wood, managing director at investment bank Moelis & Company, said we use the term markets "rather loosely" and we are a long way away from free markets for power in the US.
If you made an investment in a gas-fired asset in the PJM Interconnection, for example, and it looks like Pennsylvania may be introducing their version of zero-emissions credits for nuclear power "you probably feel a bit differently about that investment," Wood said.
Pennsylvania lawmakers are working on legislation that would expand the state's alternative energy portfolio standard to include nuclear generation, an initiative being fought by the gas industry and other stakeholders.
Are they really markets and are they really free, Wood asked, pointing to local tax policy, energy policies and other factors that need to be weighed in addition to the simple supply and demand dynamics that we have all associated with a market, Wood said.
"As an investor we have mixed feelings about subsidies," Breckenridge said.
Otherwise non-economic units that come onto the system due to "safe harboring" of wind and solar will impact power markets because they have driven people to build projects that will ultimately come off of short-term contracts, flood the market and crash power prices in the future, he said.
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