By Richard Stubbe, BloombergNEF. This article first appeared on the Bloomberg Terminal.
The global Covid-19 pandemic may slow some work on renewable energy projects but the market for corporate power-purchase agreements remains strong, Engie North America’s chief executive officer said.
Avice-Huet leads the North American unit of France-based Engie SA, which announced a major tax equity financing for its renewables portfolio on April 9. The portfolio consists of 2 gigawatts of renewable assets, three-fourths onshore wind and the rest utility-scale solar. Engie SA is the largest independent power producer and energy efficiency services provider in the world, employing 160,000 people in 70 countries.
“Even in a very challenging situation like this one, we were able to do this financing of up to $1.6 billion, which is the largest tax-equity financing that’s ever happened in the U.S.,” she said. “It shows that we can still do impressive and large deals in renewables.”
The pandemic hasn’t reduced the company’s commitment to build 3 gigawatts a year of renewables worldwide, she said in an interview with BloombergNEF in late April. The interview has been edited for length and clarity.
Q: What have the short-term effects of Covid-19 been, for Engie and for the renewables industry?
A: In many markets in the U.S., we’ve seen a decline in the energy load. That has been up to 15% in some markets, especially in New York, so load has decreased and prices have decreased as a consequence.
Now the question becomes what is the impact on the energy transition and on renewables. For North America, 2020 is supposed to be a record year with 13.5 gigawatts expected to be commissioned. There’s some pressure on the supply chain and construction; even though we can still perform the work, there will be some delays. We’ve been having extensive discussions with our suppliers to make sure that we can deliver, and we are still on track.
The question for the U.S. is whether the sector will be able to deliver 13.5 gigawatts that are expected. Corporate PPAs [Power Purchase Agreements] in 2020 are on track. In our discussions with clients, we still see plenty of appetite.
The decrease in power prices and demand is very short-term. Once you build a wind farm, it’s for 25 years.
Q: So this is more of a blip than a major change?
A: Correct. The push for renewables has not gone away. There will be delays and we have to cope with that.
Q: That’s an optimistic assessment. What obstacles do you see?
A: There are three questions on the table because of Covid-19. The first is construction, the second is factories, and the third is auctions.
With construction, there will be some delays. We continue to manage our projects, and our objective is to remain on track.
With factories, there are some force majeure declarations, some delays but then you get through that and finally you’re on track.
With auctions, we are seeing some delays that may slow developers in fulfilling commitments made in previous auctions, and the states may delay future auctions. But all of the nations that have set targets for renewable power by 2030 are keeping them.
Q: What about the slowdown of the world economy? How will that affect demand?
A: It will be a gradual ramp-up to the demand we had before. Not only are we doing renewables but we offer a number of solutions to help our clients decarbonize, which can mean reducing consumption — for example, with more efficient lighting and better insulation. It’s a full set of solutions to decarbonize our clients’ footprints.
Q: Who are your clients?
A: We have clients large and small — Microsoft and organizations like that, but we also do city PPAs, where we are taking a kind of approach where we want to get close to people who want to decarbonize.
Q: What changes are you seeing there?
A: Clients are now wanting something more reliable. We designed a 100% green solution for a client with a data center in San Antonio. The objective is to have something that’s reliable 24/7 for the data sector. Next time, we will combine wind, solar and storage so we can provide green solutions available any time of day.
Q: The current U.S. administration hasn’t been friendly to renewables. How has that affected you, to see rules designed to support coal and nuclear at the expense of wind and solar?
A: The demand we are seeing today for PPAs is starting with local stakeholders — cities and states and corporations. That is a paradigm change. In the past, renewables were driven by global or national authorities. Now it’s much more local. The cities want to decarbonize.
At the federal level, the Production Tax Credit for wind and the Investment Tax Credit for solar have been critical tools and have helped the industry blossom. At the start of this year, the U.S. wind industry was poised to invest over $60 billion in near-term projects. It’s lots of jobs that are at stake. I would say there is lots of merit in extending the PTC because over 35,000 jobs in the green sector would be put at risk if we do not keep the momentum for those activities.
It makes sense to give an extension of tax credits for projects delayed because of the Covid situation. I understand that’s under consideration and could gather bipartisan support.
Q: In response to an order from the Federal Energy Regulatory Commission, the grid operator PJM passed a new Minimum Offer Price Rule that is largely seen as a subsidy for coal and nuclear generation. How does Engie plan to respond to that?
A: Obviously the FERC decision came as a surprise and we are very much not in favor of that. Despite that rule, renewables will continue, even though it’s a degradation compared to what we had before. We can just advocate for not having that spread into other geographies.
Q: How do you see storage developing in the 2020s, and what’s Engie doing in that space?
A: We see an increasingly powerful call for more grid resiliency. In California, there’s a move not just to have on-site solar but on-site solar plus storage. We also see a boom coming in states like Massachusetts. We see that as a trend, and more and more renewables will combine different technologies because resiliency will matter more and more. Corporate clients are also showing more interest in 24/7 grid solutions.
Q: What else are you working on as the global energy mix changes?
A: We are working quite a lot on green hydrogen, which we’ve produced using electrolysis from wind and solar power production. It could have many applications — helping miners decarbonize their processes, or a hybrid plant might have batteries on one side and green hydrogen on the other. Today we see small-scale development and we need to reduce the cost. It’s much longer-term but we need to make the investments now.