Renewable energy is coming of age. From being a marginal source of generation it has moved to the mainstream. And while the investment and market support context remains complex, it is attracting considerable interest from institutional investors looking for steady long-term returns. At the same time, there is the quest to make fossil fuel generation cleaner and more efficient, including the challenge and uncertainty of carbon capture and sequestration (CCS) technology.
The delivery of cleaner and renewable energy entails considerable investment, project and technological challenges. Developments such as the exploration of carbon capture technologies, large scale solar generation and offshore wind in deepwater locations carry significant risk and uncertainty. These risks are all the greater given the volatile market for renewables. Companies must manage frequent demand-supply imbalances caused by cyclical factors like oil prices and one-time events (e.g., the Japanese nuclear crisis). At the same time, they must deal with a variable of government subsidies. A significant component of the industry’s growth, especially in solar, is driven by politically unstable incentives.
Changes can wreak havoc on companies’ operational performance, particularly for vertically integrated solar and wind manufacturers aiming at an ever-moving demand target.