The declining cost of renewables such as wind and solar over the last decade have been nothing short of breath-taking. However, if you look at global capital flows into new renewable installations, capital flows have remained at around $300-350bn for the past few years, according to statistics from Bloomberg.
The challenge going forward is how to mobilise five times that amount — $1,500bn a year is the level of investment the IEA estimates are needed for the world to go net zero by 2050.
Transforming the energy system is no easy task and requires a core focus on electrification, which is the most important form of energy we have. Without electricity the mass of digital devices that make up our modern lives would not function, and as we saw in the Texas blackouts, heating and water systems did not operate because of the lack of electricity.
Boosting investment in renewable electricity, smart grid and other enabling technologies such as the various forms of energy storage will not only drive emissions reductions, but also create local jobs, noting that all these new infrastructures need to be installed, operated and serviced.
The cheapest form of energy has always led to great periods of economic growth and comparative competitive advantage. Think of Britain with its cheap coal during the industrial revolution or Saudi Arabia with its low-cost oil.
But today, the most affordable ways to produce electricity are with solar and wind, and as we electrify more and more of society, these technologies will become the bedrock of a 21st century economy.
What makes these renewable technologies interesting is that they have no fuel costs, with minimal and highly predictable operating costs.
In this new world, the way to drive down costs and thus increase competitive advantage is to push down capital costs while at the same time building up the necessary skill set to ramp up and run an energy system based on these technologies.
Getting to the $1,000bn per annum investment number is the first challenge. In practical terms, this increase in investment means replacing the global capital stock of all fossil fuel-powered devices from vehicles to gas turbines with low- or zero-carbon alternatives.
The size of the required investment is heavily influenced by the cost of capital. The higher the cost, the more expensive the transition will be. In addition, the maturity level and the potential of technological innovation for key technologies such as solar and batteries are critical. This can all be impacted by policy, where poor policy increases risks and lowers capital flows or makes them more expensive, while good policy aligns investor incentives around climate goals as well as reduces risks and thus pulls in lots of low-cost capital.
This low-cost capital is particularly critical for clean energy technologies such as wind, solar and EVs, which have higher relative upfront investments costs than fossil fuels but lower lifetime costs.
This shift towards a much more capital-intensive energy system is a key difference to the fossil fuel world.
This cost-of-capital issue is particularly critical in emerging and developing economies, which currently have financing costs up to sevenfold higher than in Europe and the US.
What this means in practice is that the costs of generating electricity with solar in Pakistan are currently higher than Netherlands even though a Pakistani solar plant would generate 50% more electricity per year.
Nurturing the financial conditions to enable a rapid deployment of clean energy technologies across the world is one of the defining challenges of this era. We require creative thinking, technical solutions, new business models, market mechanisms, and innovative financial offerings to achieve net-zero. More importantly, the energy transition also calls for a profound rethinking of how we live and work.
It also requires a rethinking of how capital is deployed, but the good news is that it is happening.
We have reached an inflexion point in the finance world with regards to climate change, with investors increasingly seeing climate risk as investment risk. There are two aspects to this: the first of which are physical risks, such as storm damage; and the second, climate policy. The latter is primarily a risk for owners of fossil-fuel assets or those who are dependent on fossil fuels as an energy source.
However, it is also an investment opportunity as new regulation and legislation drives growth, demand and capital flows into renewables.
The final piece of good news is that there is no shortage of low-cost capital across the world looking for a home.
The challenge is how to funnel that capital into hard-to-decarbonise sectors such as cement, and developing countries, where it is very much needed.
Gerard Reid is a co-founder of energy-focused financier Alexa Capital and a member of the World Economic Forum’s Future Energy Council.
Ontario supports investment of $31.5M in Wellington, Perth county businesses – CTV News London
London, Ont. –
Ontario supports $31.5 million surge within the Southwestern Ontario economy with $2.6 million being invested in Wellington County through the Regional Development Program.
The investment by Wellington County manufacturers, which will build on domestic manufacturing is being supported by the Ontario government, will help to create 71 jobs and retain 150 jobs.
“Through the Regional Development Program, our government is making targeted investments in local manufacturers to help them create good, local jobs,” said Vic Fedeli, Minister of Economic Development, Job Creation and Trade in a statement.
“These projects are making a significant impact in communities and economies across the Wellington County region and Southwestern Ontario by helping to secure the private-sector investment that will support strong regional growth.”
The investments are as follows:
- Weberlane Manufacturing is investing $4.8 million to build a new 115,000 square foot manufacturing facility in Listowel.
- Nieuwland Feed & Supply is investing $16.2 million to consolidate its production facilities as well as build a second feed mill on the property.
- Bold Canine is investing $6.5 million to expand and renovate its facility, purchase equipment, and invest in research and development.
- Wellington Perforated Sheet and Plate is investing $3.9 million to develop new products, and produce more steel parts in-house.
The Regional Development Program for Eastern and Southwestern Ontario was launched by the government in November of 2019.
U.S. equity portfolio manager explains seven-step investment process – Wealth Professional
The third step is identifying growth drivers. Sanders carries with him words from an old mentor – ‘always understand what drives top-line revenue’. For example, when Sanders first invested in Amazon back in 2003, when it was $17 a share, online penetration of retail sales in the U.S. was only 3%, but he believed that number was going to grow substantially over time. He met with Jeff Bezos who explained his competitive advantages – widest selection, lowest prices and convenience – completed his analysis and bought the stock. Sanders said: “That’s an example of a company that had a clear growth driver – penetration of its end market with offline retail going online.”
The fourth step is a financial statement analysis, getting into the nitty gritty of the balance sheets from a cash-flow perspective, while the fifth step is a management team assessment. Sanders is not interested in a company’s latest shiny product but instead wants to understand the key assumptions that go into his team’s investment process. ESG factors are also analysed at this stage, including how the board is made up and the compensation model.
Step six is critical and involves Sanders laying out four scenarios – best case, base case, bear, and worst, which are all five-year minimum discounted cash-flow models. The base case is what he thinks the stock is worth today, an estimate of cents on the dollar or intrinsic value. If Sanders believes a stock is worth $100 and it’s trading at $70, it’s 70 cents. He said: “We have this list of companies we’re following, and it’s ranked by cents on the dollar every morning. When stocks get to 70 cents, we recheck the analysis and we buy, and when stocks get up to 100 cents, we sell. That, in a nutshell, is our process.”
Every quarter these values are updated, in step seven, so it’s a moving target, underpinned by deep fundamental research that involves a 10-person team looking at one stock at a time before presenting it the team for debate.
While many investors focus on what is happening that quarter, Sanders told WP he thinks longer term, an approach illustrated by the crash of March 2020. He saw a health crisis, not an issue with the consumer, who ultimately drives the economy. Now in his third market cycle of managing money, the portfolio manager recognized that many elements were actually in good health, from millennials with no mortgages, a housing market at steady levels in the U.S. as it continued its recovery from the 2008 Global Financial Crisis, and a banking system that was doing well after 10 years of Federal Reserve stress tests.
Surge Closes Investment into Contractor Connect – Business Wire
DALLAS–(BUSINESS WIRE)–Surge Private Equity LLC (“Surge”) announces investment into its 10th platform, Contractor Connect LLC (“CC” or “Company”), a B2B networking lead-generation platform within the home improvement and remodeling space. The transaction closed with debt financing provided by Modern Bank and Assurance Mezzanine Fund with BakerHostetler acting as lead counsel.
Since its founding in 2014, CC has connected hundreds of thousands of homeowners to local contractors through its proprietary lead aggregator, screening, and live-transfer platform. The Company primarily specializes in various home remodeling verticals including bathrooms, windows, roofs, gutters, and sidings. Its recognized brand is highly regarded across the 25+ states it currently serves. Founder Joseph Powless will remain on as both an owner and partner of the Company.
“COVID has accelerated work from home hybrid and full-time trends. People are now spending more time at home, increasing the demand for home improvement,” said Surge Founding Partner Thomas Beauchamp. “This sustained macro demand for the industry paired with our plan to launch into new verticals such as HVAC and solar give us a clear pathway to sustaining the historical 25% annual growth rate.”
About Surge Private Equity
Surge Private Equity is a Dallas-based private equity firm that seeks majority investments in growing businesses with $2-7.5MM of EBITDA. Together with its lending partners, Surge provides entrepreneurs with liquidity and investors with higher yields and greater accessibility through lower investment minimums. Surge primarily invests in companies where the seller will remain in an ongoing capacity.
About Modern Bank
Modern Bank, N.A. is a privately owned, entrepreneurial bank that provides flexible, competitive, and reliable senior debt financing solutions to commercial companies. Its experienced bankers specialize in working with lower middle-market companies and owners to provide low-cost cash flow-based financing solutions.
About Assurance Mezzanine Fund
Assurance Mezzanine Fund is a private investment firm providing $3 to $20 million customized growth capital solutions to profitable, lower-middle-market companies nationwide. We look to invest our funds in established companies operated by experienced and proven management teams with a history of building enterprise value.
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