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Energy sector transformation creates huge opportunities

The massive transformation that is taking place in the energy sector is creating many opportunities for investors, delegates heard at Real Asset Media’s Infrastructure summit: investing in new energy briefing, which was held online on REALX.Global yesterday.

Thomas Veith, Partner – Leader Real Estate/Real Assets, PwC

“There is so much to do and hundreds of billions are needed to transform the energy sector and make it green”, said Thomas Veith, Partner – Leader Real Estate / Real Assets, PricewaterhouseCoopers. “There will be opportunities for all types of investors and different risk/return profiles”.

As new technologies like wave, tidal and hydrogen are developed, they become viable on a commercial scale, as in the case of electric vehicle charging and batteries. These technologies, like wind and solar, liquefied natural gas infrastructure and energy from waste incineration, can then establish a track record for returns.

“In the development phase, venture capital can target investor returns of 20% plus”, said Veith. “In the commercial viability phase, private equity investors can aim for 10 to 20% returns. In the third mature phase, infrastructure investors can target returns of 5-10%”.

PwC has identified five key drivers in the energy market. First, the need for decarbonisation, which is being push not just by Governments and regulators but by corporates, capital markets and end-users as well.

The second driver is technological progress, which is enabling better sources of renewable energy, leading to a more decentralised system of energy production which is also cleaner and smarter.

The third element is clean air policy, which again is being pushed by people who are increasingly aware of the risks of pollution. “The 2013 Air pollution plan in China has a very significant impact on driving investment and focusing minds on the issue”, said Veith. “Another important factor is that technology is making clean air more affordable, so it can have more of an impact on people’s lives”.

The fourth driver is growing environmental concerns, which are behind the search for new solutions such as technology to create energy from waste to reduce pollution in the oceans.

The fifth and final driver is ageing infrastructure. Energy production plants were built decades ago and are coming to the end of their useful life. “The push for new sustainable infrastructure is coming to the fore as the demand for renewable green energy is growing”, said Veith. “There’s a real competition between old and new”.

The winner will be multi-centralised energy production, he said. The traditional energy supply chain is changing significantly and the new supply chain will be much more de-centralised.