This article is from Mercatus Global and its Advanced Energy Insights Report Vol. V
Fierce competition amongst downstream renewable energy companies put downward pressure on project returns throughout 2016. Declining technology costs, combined with market pressures amounted to a supply-side shift, reducing the overall price of renewable energy power while expanding demand, especially in new geographic market segments.
2016 marked a significant departure from a market where the dominant buyers of power were utilities. In 2016, utility off-takers waned in share of off-take agreements by more than 20%, overtaken by businesses interested in purchasing renewable power directly.
Key findings that underscore these conclusions:
The cost reductions associated with renewable energy technologies mostly benefit energy consumers as off-take rates reached record lows, indicating that competition amongst downstream energy companies is putting downward pressure on the price of energy. Lower costs and tighter margins have meant that capital invested in renewable energy technologies in 2016 was cycled more efficiently, with more MW/$ invested coming online than ever before.
Lower power prices have made renewable energy projects increasingly competitive with traditional fuel sources, expanding the quantity of energy demanded. Demand for renewable energy is emerging from new segments – most prominently corporate investors and off-takers.
Despite political changes in 2016, renewables remain on a growth trajectory due to declines in prices. Energy companies continue to diversify their development into new geographies and technologies. Tighter gross margins with greater market demand underscore the need for downstream energy companies to maximize operational efficiency.
To survive
The industry’s transformation can better position itself for future competitiveness and growth. To do so, energy companies are focusing on factors they can control like their own operational efficiency. They are recognizing that process digitization and task automation is the key. As a result, 77% of energy and utility companies are undertaking digital transformation projects, according to a recent study conducted by CA Technologies.
For the full 19-page report: https://goo.gl/N2MdVw
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