Renewable Infrastructure Investments: An Increasing Focus on Energy Storage

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Renewable Infrastructure Investments: An Increasing Focus on Energy

PRIVATE CAPITAL

Renewable Infrastructure Investments: An Increasing Focus on Energy Storage

Aug. 03, 2020

The growth of “green” energy is indisputable—renewable energy overtook coal generation in the United States for the first time in 2019, providing 23% of US power generation, exceeding coal’s 20% share.1 Solar and wind energy receive the majority of new investment, with 97% of net new generation capacity additions expected to come from these two resources in 2020.2

As the expansion of renewable energy infrastructure continues, we anticipate such investments will be coupled increasingly with the installation of storage capacity, typically in the form of batteries. The evolution of battery technology and a corresponding further decline in costs will be essential to ensure the integrity and resiliency of power supply sources such as solar and wind, particularly with the continued retirement of coal-fired and nuclear baseload plants.

One of the hallmarks of the US electricity grid is its dependability. With rare exception, we fully expect the light will turn on when we flip the switch. Along with the proliferation of solar and wind projects comes the need to build consistency of supply into the system so that customers can continue to rely on the grid’s dependable performance. Due to the inherent intermittent nature of wind and solar resources and the increasing frequency and severity of natural events such as hurricanes, floods and wildfires, utilities and other power providers seek new ways to counter fluctuations in the expanding output of renewable generation. The increased availability and cost-effectiveness of storage solutions should make renewable assets more cost- and performance-competitive with traditional energy sources, further bolstering adoption of renewables. 

Furthermore, as the impacts of Covid-19 spread amid substantially reduced economic activity, one outcome is cleaner water in the canals of Venice and reduced smog over large cities like New York. In short, people have noticed this environmental progress and are now eager to maintain these long-term improvements in water and air quality, and the overall environment. Renewables will not only be a key component in responding to those demands, but also can be effective tools to address and mitigate the risks of climate change. 

Based on the factors cited above, we believe investment in storage will be a critical step in the evolution of renewable energy infrastructure as an asset class. We see that the availability of storage not only contributes to the viability of renewable infrastructure projects, but is also an investment opportunity in its own right. 

The essential role of power production, lightly cyclical demand, and the fact that many market participants are highly regulated or even monopolies, provide good credit characteristics. This credit strength can continue to be the case as power production shifts to renewable power, particularly with energy storage capacity. 

Consequently, MetLife Investment Management (MIM) believes investors focused on infrastructure increasingly will seek to allocate capital to financing renewable energy and systems to store such power generation.

1 Deloitte “2020 Renewable Energy Industry Outlook,” page 2.
2 Deloitte “2020 Renewable Energy Industry Outlook,” page 2.

Authors
Stuart Ashton
Director, Leasing and Tax Equity Investments