Perspectives
18 December 2024
The world’s surging demand for electricity continues to represent a historic opportunity for the renewable energy sector, which has demonstrated its resilience throughout the challenging macro-environment of recent years.
Following a period of inflation across all energy sources, renewables costs have stabilised as the cost of solar panels and batteries have returned to their historic downward trajectory.1 This structural tailwind is combining with strong and generally consistent policy support across all major developed and emerging markets and surging demand for green power from corporates and industry to underpin the resilience of the sector.2
Global clean energy investment reached $US1.9 trillion in 2023, up 10 per cent year-on-year, and well above the $US1.1 trillion invested in fossil fuels.3 This record level is far from marking a peak – solar and wind installations globally are expected to grow at 10 per cent on average annually in the period to 2030, batteries for power storage at 25 per cent and EVs at 17 per cent (all well above the expected growth rate of the global economy and fossil fuel demand for the period).4
Encouragingly, investor appetite is growing and diversifying to support this trend, building on the energy transition’s track-record of delivering positive returns.5 Institutional investors continue to play a key role in renewable energy and are starting to play a similar anchoring role in newer segments of the energy transition.6 Private wealth investors are also entering this space, and we see significant potential for this segment to grow in the future.
Exit multiples in the renewable energy sector have been relatively stable since 2018 and less volatile than those in oil and gas. Some of the pressures experienced during the recent period of inflation have started to reduce in 2024.
Source: MSCI7
As one of the world’s largest infrastructure asset managers8, Macquarie’s deep sector expertise and global presence enables us to connect capital with a broad range of investment opportunities. Macquarie Asset Management’s team of energy transition specialists are managing over $US7 billion in equity under management9 energy transition strategies and are working with 35+ portfolio companies, many of which are supporting leading corporates around the world to build green energy and transition solutions.
Thanks to their low costs and speed of deployment, solar and wind projects have overwhelmingly become the technologies of choice to meet growing electricity demand across the globe (see chart below). This practical reality has meant that in most countries, renewables deployment is set to exceed existing government targets.10
As the world enters a period of significant electricity demand growth, the solar and wind sectors have established themselves as the largest providers of new supply globally.
In the race to secure new sources of clean electricity, solar and wind have the advantage on cost and on speed of deployment. It takes just 2.3 years on average to get a utility scale solar project from permitting to commissioning in the OECD, 2.7 for onshore wind and 5.4 for offshore wind.
Source: Capacity and generation data from BloombergNEF; Benchmark project development times from Gumber et al. (2024)11
However, despite this considerable growth, demand for clean power significantly outstrips supply. The RE100 group of corporate clean energy buyers alone faces an estimated shortfall of 275 TWh per year by 2030 (equivalent to Australia’s electricity generation in 202312), and electrification and growing demand from data centres to support AI are adding further pressure.13
Data centres are currently accounting for only ~2 per cent of power demand globally.
Based on growing demand for AI, data centres could account for 7-8 per cent of demand by the end of the decade.
Source: BloombergNEF, Macquarie Research14
Data centre developers and industrials face a particular challenge in their efforts to procure power as their loads tend to be large and geographically concentrated. Their incremental demand can add significant pressure to the grids that they are connected to, whilst their ability to procure more clean electricity may be constrained by competing loads and grid or permitting bottlenecks.15
These demand drivers and constraints are underpinning strong value creation potential for specialist businesses focused on the deployment of renewable energy solutions at scale and tailored to the needs of corporate partners. Macquarie Asset Management Green Investments works with over 35+ portfolio companies across key markets and sectors. From wind, solar and nature-based solutions, to green fuels, electrified transport, grid solutions and beyond, the team has built an extensive portfolio of renewable energy platforms, many of which are working with leading corporates to deliver utility-scale and onsite renewable energy and transition solutions where they need them.
Aula, a specialist renewable energy business launched by Macquarie Asset Management in 2023, is dedicated to developing, building and operating onshore renewable energy projects across Australia and New Zealand.
In September 2024, Aula reached financial close on Boulder Creek Wind Farm, a 228 MW project in Queensland, Australia’s longest serving mining region.16 Boulder Creek is Aula's first project to move into construction and will comprise of 38 wind turbines.
The volatility of power prices is increasing across the world, as the build out of flexible power sources lags higher levels of variable solar and wind energy generation.17 Power prices are routinely reaching record-low daytime levels in markets with high solar penetration, such as Germany or California, and during windy periods in Denmark or the UK.
Meanwhile, the cost of battery energy storage systems (BESS) has resumed its sharp decline, falling by 24 per cent over 2022-2023, erasing the increase observed over the recent period of higher inflation.18 Costs are widely expected to continue to decline, dropping up to 35 per cent over 2023-2030.
This creates a step-change in opportunity for battery storage developers whose business models are based on providing grid services and power price arbitrage – charging when electricity is cheaper and discharging when it is more expensive – and tend to offer significant locational flexibility and cost advantages over alternatives like pumped hydro or hydrogen. Governments and grid operators are supporting this dynamic by allowing batteries to participate in capacity markets and in ancillary services. In Europe alone, €22 billion in state aid has been approved to support energy storage projects since 2022, contributing to an expected fivefold growth in annual installations between 2023 and 2030.19
Source: Eku Energy
Global energy storage specialist and Macquarie Asset Management portfolio company, Eku Energy, recently announced the completion of commissioning the Maldon BESS located in Maldon, in the county of Essex, England.20 The Maldon BESS is Eku’s first UK project to reach commercial operation.
The Maldon BESS has a capacity of 40 MW/40 MWh capable of responding within 350 milliseconds, suited to deliver ancillary and balancing services to support both the local and National Grid. The project has also secured a long-term capacity market contract.
Recent supply chain pressures and shifting geopolitical dynamics have led to an unprecedented wave of clean technology manufacturing investment, especially in battery manufacturing plants tied to EV supply chains (see chart below). The ongoing dynamic is marking a radical shift from recent trends in terms of geographic distribution of investment, with clean technology manufacturing investment outside of China expected to account for 36 per cent in 2025, up from just 8 per cent in 2023.
Source: Energy Transition Investment Trends 2024, BloombergNEF21
Crucially, scaling clean technology supply chains is capital intensive and complex. This has created opportunities for new partnerships between manufacturers, public finance institutions, institutional investors and governments, aimed at enabling large scale investments in innovative companies that can scale their production rapidly.
Source: Verkor
Verkor, a Macquarie Asset Management portfolio company also backed by Renault Group and Schneider Electric, was created with the ambition of fast-tracking low-carbon battery production in France, to serve the European market. Construction of its first gigafactory at the 80 hectares ‘turn-key’ site identified by the government near Dunkirk started in 2023 and is progressing with the help of sixteen thousand workers.22 The gigafactory is expected to deliver 50 GWh of batteries a year by 2030.23 Adding to this positive momentum, Verkor welcomed EnerSys and ING Sustainable Investments as new investors in October 2024.
Momentum is also building in sectors where electrification and renewables are not a near- or longer-term solution. Our recent experience has shown that there has been a significant pick up in investment opportunities in sustainable aviation and shipping fuels, biomethane and low-carbon fertilisers, anchored through partnerships with large corporates and increasingly supportive policies.
The demand surge for sustainable aviation fuels (SAF) illustrates this dynamic. SAF has emerged as a critical near-term decarbonisation solution for airlines beyond flying more efficient airplanes.24 Commitments from early-mover airlines to help build-up a SAF supply-chain have driven a surge in offtake agreements and global production capacity is expected to grow to 17.3 Mt by 2030, up from 4.5 Mt in 2024.25
Clear hurdles to large scale deployment remain, notably the scarcity of feedstock and competing technological pathways. SAF producers have limited time to reach scale and secure reliable feedstock sources to meet the demand of airlines. Those that are able to leverage their experience and mobilise capital are likely to stand out in this race.
Macquarie Asset Management invested in SkyNRG, a Sustainable Aviation Fuels (SAF) specialist company founded in 2010, to support their next phase of growth. By 2030, SkyNRG aims to build facilities in Europe and the US, in cooperation with strategic offtake partners. To date, SkyNRG has secured partnerships with KLM Royal Dutch Airlines and Boeing (among others), with envisaged long-term commitments of up to €4 billion in SAF purchases at the time of Macquarie investment.26
Our Green Investment team is committed to creating investment opportunities and practical decarbonisation solutions for our clients and investee companies. This commitment is built on our portfolio of specialist green energy businesses, that are developing and operating the energy systems of the future, and are supporting our clients and portfolio companies on their decarbonisation journeys.
