Section 1:
Energy transition financing has become a clear priority
Capital allocation across the energy sector has shifted. In our research, 42 per cent of energy company executives say they now see capital investment in the energy transition as a high priority—three times what it was two years ago, when respondents favoured capex in traditional business areas.
This change reflects the scale of the net-zero challenge, says David Tilstone, a Managing Director at Macquarie Asset Management. “Capital needs to flow into renewables but also into less clean sectors,” he says. “That will help them become more mature over time—as they need to—and will help to decarbonise other areas of the economy.”
White & Case Partner Sandra Rafferty agrees. “Initially, when corporates, funds and banks considered energy transition, it was with a view to identifying and funding renewable energy sources like wind and solar, as well as newer technologies,” she says. “However, the more forward-thinking players in this sector now recognise that full energy transition will also encompass taking fossil-based systems of energy production and consumption and decarbonising them.”
Capital allocation across the energy sector has shifted. In our research, 42 per cent of energy company executives say they now see capital investment in the energy transition as a high priority—three times what it was two years ago, when respondents favoured capex in traditional business areas.
This change reflects the scale of the net-zero challenge, says David Tilstone, a Managing Director at Macquarie Asset Management. “Capital needs to flow into renewables but also into less clean sectors,” he says. “That will help them become more mature over time—as they need to—and will help to decarbonise other areas of the economy.”
White & Case Partner Sandra Rafferty agrees. “Initially, when corporates, funds and banks considered energy transition, it was with a view to identifying and funding renewable energy sources like wind and solar, as well as newer technologies,” she says. “However, the more forward-thinking players in this sector now recognise that full energy transition will also encompass taking fossil-based systems of energy production and consumption and decarbonising them.”
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Where are energy companies allocating capital?
Another reason for this shift in capital allocation is the outlook for long-term cost savings for companies, says Peter Wexler, Schneider Electric’s Senior Vice President and Chief Legal Officer. “Take the utilities on the US West Coast—their transformers will cause these huge wildfires,” he says. “If they find a different way to operate through other resources and modernisation, it is worth the investment. They have to suffer in the short term to prosper in the long term.”
Where are energy companies allocating capital?
Another reason for this shift in capital allocation is the outlook for long-term cost savings for companies, says Peter Wexler, Schneider Electric’s Senior Vice President and Chief Legal Officer. “Take the utilities on the US West Coast—their transformers will cause these huge wildfires,” he says. “If they find a different way to operate through other resources and modernisation, it is worth the investment. They have to suffer in the short term to prosper in the long term.”
A mix of funding will speed things up
To reach net-zero by 2050, clean energy investment worldwide will need to more than triple in this decade to about US$4 trillion.
Energy companies in our research expect to be able to draw on a range of financing sources, both from third-party capital providers and from their own balance sheets. Private equity (PE) will be an important provider of cash and expertise. And 32 per cent expect to draw from their existing balance sheets—particularly as soaring oil and gas prices boost the profit margins of many players in the energy sector.
How will energy companies finance their energy transitions in the next 18 months?
As for the funding itself, many capital providers also plan to tap into a range of financing options to supplement their own resources. Forty-five per cent expect, like the energy companies, to use PE financing as they pursue energy transition.
How will energy companies finance their energy transitions in the next 18 months?
As for the funding itself, many capital providers also plan to tap into a range of financing options to supplement their own resources. Forty-five per cent expect, like the energy companies, to use PE financing as they pursue energy transition.
Bringing capital into this sector is enormously important, but there is also a skill in being able to create assets. It requires expertise and experience to be able to go through that development period and to commercialise a project
David Tilstone
Managing Director | Macquarie Asset Management
Bringing capital into this sector is enormously important, but there is also a skill in being able to create assets. It requires expertise and experience to be able to go through that development period and to commercialise a project
David Tilstone
Managing Director | Macquarie Asset Management
