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Enter the age of Renewable Energy Fintwit. As @EnergyCynic and I were chatting this morning, we concluded #REFT is gonna be REKT...
A primer on why these renewable investments are going to wind up biting investors and ultimately tax payers right in the pocketbook (1/n) https://twitter.com/emilygosden/status/1359118359888080898
A primer on why these renewable investments are going to wind up biting investors and ultimately tax payers right in the pocketbook (1/n) https://twitter.com/emilygosden/status/1359118359888080898
Right now money is pouring into the space left and right... ranging from SPACs to sovereign wealth, complimented with cheap debt.
This money supply has led to extremely competitive projects and has driven project returns down even further.
(2/n)
This money supply has led to extremely competitive projects and has driven project returns down even further.
(2/n)
Luckily for renewable developers the cost of capital and cost of debt is almost free due to negative interest rates in the EU and funds that want ESG exposure
This has allowed low-single digit return projects to be green-lighted despite project returns you shouldn’t touch (3/n)
This has allowed low-single digit return projects to be green-lighted despite project returns you shouldn’t touch (3/n)
If European countries experience inflation and rates go up, all of the money that is flooding Into the space is going to get more expensive and all of these projects will be uneconomic
Again, the two reasons they work now is because the money is free plus tax incentives (4/n)
Again, the two reasons they work now is because the money is free plus tax incentives (4/n)
These projects have a couple of more problems that we need to account for.
The second main problem is siting.
Similar to O&G siting for wind and solar is extremely important.
Most of the Tier 1 sites for wind have already been built out. Next will be tier 2 (5/n)
The second main problem is siting.
Similar to O&G siting for wind and solar is extremely important.
Most of the Tier 1 sites for wind have already been built out. Next will be tier 2 (5/n)
Which is going to require larger more expensive turbines that will help to offset the lower capacity factor of the turbines.
Additionally, there will be an added cost to the grid to bring the electricity to market.
This is happening with solar PV too (6/n)
Additionally, there will be an added cost to the grid to bring the electricity to market.
This is happening with solar PV too (6/n)
With solar PV you also have degradation issues where it’s estimated you lose about 3% efficiency loss each year.
I seriously doubt this is being accounted for when evaluating project economics.
(7/n)
I seriously doubt this is being accounted for when evaluating project economics.
(7/n)
For wind, as the turbines get larger and the blades / rotors / gearboxes get heavier, it is going to require larger and larger cranes for installation and maintenance.
This maintenance capex is going to eat into the already razor thin margins.
(8/n)
This maintenance capex is going to eat into the already razor thin margins.
(8/n)
None of this takes into account the cost for backup baseload generation or the future cost of storage which may not impact the project returns but again will impact the rate payer.
As an investor and the money continues to pour in, the only sound strategy I can see (9/10)
As an investor and the money continues to pour in, the only sound strategy I can see (9/10)
Is to develop and sell the project off to another bag holder while these projects trade at a premium and your terminal multiple justifies the project risk.
Hope is not a plan though.
The setup is simply just shale 2.0 with a feel good message... for now
(10/10)
Hope is not a plan though.
The setup is simply just shale 2.0 with a feel good message... for now
(10/10)
