Environmental, social, and governance investment is inarguably one of the hottest trends in financial markets. Investors are pressuring companies into reducing their carbon footprint, and asset managers and banks are devising ways to maximize this pressure to drive emissions down. The ESG trend spans all industries, but one place where its impact is particularly visible is power utilities. Renewable energy is in, fossil fuels are out: this seems to be the dominant trend these days. It is likely to, at the very least, remain stable over the coming years, although it is more likely to accelerate with all the government support for renewable energy in key markets.
Renewables were the driver of most mergers and acquisitions in the power utility sector last year, according to a recent report by EY. Investors looked to reduce their exposure to “carbon-heavy” assets and reorient themselves to more environmentally friendly operations.
Of course, cost reduction was also a factor in dealmaking during the first year of the pandemic, but the shift from fossil fuels to renewables was as evident as it is among Big Oil majors, with the pandemic likely only accelerating trends already present in the industry. And with ESG investing the new black, we might see a change in the utilities sector similar to the change we are seeing in Big Oil.
Comparisons between fossil fuel-powered electricity generation and renewable installations recently hogged headlines amid the Texas Freeze. Some blamed wind turbines, which froze in the uncharacteristic sub-zero temperatures that hit the Lone Star state earlier this month. Others blamed gas-fired power plants that were not calibrated for such weather. Both camps brushed off the other’s arguments.
The truth is that both renewable and fossil fuels failed. Wind turbines did freeze, and gas-fired plants—and coal plants, and nuclear plants—did suffer outages because of the cold. As a result, the Texas grid came close to a complete collapse, ERCOT revealed this week. This should highlight the crucial importance of grid security, especially with an increasingly diversified energy mix, because renewables are not going anywhere. Related: Bank Of America Expects Fastest Oil Price Rise In 30 Years
“The low-carbon energy transition shows no signs of abating,” Miles Huq, partner, Strategy and Transactions at EY, told Oilprice. “If we look at the big picture, the intensifying appetite for renewable energy and ESG investments will endure in the aftermath of the winter storms in Texas.”
In other words, the ESG momentum is strong enough to ignore frozen turbines and focus on the equally frozen thermal power plants, which, in addition to revealing themselves as unreliable during winter weather, have a bad rep that investors increasingly intensely dislike.
Mergers and acquisition deals in renewable energy in the Americas last year hit a total $17.3 billion last year, the EY report noted. In comparison, the…
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