Decarbonization Investment Themes

Russell Reynolds Associates recently hosted the seventh instalment of the Energy Matters, People & Money networking series which brought together a community of energy industrialists and investors across the energy transition value chain to debate some of the interesting investment opportunities available to both incumbent energy players and challenger brands within the next generation of global decarbonization.

Event Speakers

Alessandra Pasini

Co-Founder & President, Zhero

Will Gardiner

Chief Executive Officer, Drax Group

Participant Insights

Decarbonization Growth Investment Opportunities

Long-duration energy storage (LDES) presents an interesting opportunity – particularly in pump hydro storage - as there is growing consensus that flexible LDES technologies will be critical to fully decarbonize, especially as renewable energy production increases. However, poor revenue stabilization mechanisms have resulted in fragmented private investment in LDES technologies to date. A cap and floor mechanism is the standout solution to overcome this as investors can see the project’s annual maximum and minimum revenues over an extended time-period, which reduces risk.

There are global growth opportunities in sustainable biomass generation as it helps to provide the renewable electricity needed for a net-zero economy, as well as enabling other sectors to decarbonize, such as transport. The market for biomass wood pellets in Europe and Asia is expected to grow in the current decade, principally driven by demand in Asia.

The market for carbon dioxide removal technologies (CDR) is expanding rapidly as private capital from big tech, corporates and venture capital floods in to help early-stage carbon capture and storage companies to scale up. The United States Inflation Reduction Action (IRA), through a blend of grants, loans and tax credits, is also driving increasingly attractive returns for CDR investors in the US.

Hydrogen remains relevant for the remaining hard to abate sectors, pegged for the last 20%. Although this is a minority in the energy mix, this investment is equivalent to the size of the global electricity system today!

Regarding emerging markets, since 2012 investment in the global south has decreased from $150bn to $75bn. This is a both problem and an opportunity - for example the IRA’s $3 per kg of green hydrogen - but this can be more than offset by cheap at source solar in Morocco.

Takeaway

Increases in interest rates and inflation will create headwinds for investment, at a time when many argue investors must change their attitude to risk to deliver on the energy transition and ensure growth in critical clean technologies. A partnership mindset and highly collaborative approach is critical to development. Businesses from across the energy and infrastructure sector must double down on working together to promote the evolution of an integrated future energy sector.

Please get in touch if you would like to discuss these investment opportunities in more detail, and/or attend the next event in the Energy Matters series on the 27^th of September which will be focused on the energy transition in emerging markets. Paddy Padmanathan, the former CEO of ACWA Power will kindly join us as a co-host.

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