Flush with opportunity and the capital needed to move investment and merger and acquisition (M&A) strategies forward as the rush to decarbonise the global energy system heightens, corporate power and renewables companies need to prepare for rising near-term risk, says consultancy group Wood Mackenzie.
The company says decarbonisation is the lynchpin of the global strategy to meet the 1.5 °C warming scenario influencing companies’ planning.
According to its new ‘Corporate power and renewables: 5 things to look for in 2022’ report, the complexity of achieving project progress with buy-in from investors may be the biggest barrier to meeting the targets being set.
Wood Mackenzie highlights that calls for improved disclosure on emissions performance and environmental impact are increasing as investors seek best-in-class performance on environmental, social and governance (ESG); therefore, companies need to outline plans to decarbonise their entire business, including intermediate targets on the road to net zero.
The company indicates that activist investors will push listed utilities to justify integrated business models and some, for example the SSE in the UK, could move to sell-down regulated transmission and distribution businesses, recycling capital into network expansion and renewables capacity growth.
In the US, it points out that the pressure will be on integrated utilities to divest nonregulated conventional generation assets.
Wood Mackenzie also expects the M&A market to heat up as buyers see acquisitions as the most expedient way to capture the growth potential of renewables, and that packaging broader low-carbon solutions to help a range of end-users decarbonise will also be high on the corporate agenda.
The company also notes that renewables’ increasing share of the power generation mix makes intermittency a bigger challenge – electricity outages would severely undermine confidence in utilities’ role in leading energy transition change.
In the wind and solar markets, continued pressure on capital expenditure, impacted by rising equipment costs, will force auction prices up in 2022, the study indicates.
Polysilicon, steel, copper and aluminium pricing, combined with logistical bottlenecks, contributed to equipment price increases throughout 2021 and companies will need to work to protect their margins going forward, Wood Mackenzie states.