Smarter investment management will be key in identifying regulatory certainties when it comes to developing renewable projects.

 

In light of the bleak situation that European utilities are facing today, ČEZ is one of the few power producers that’s managed to avoid taking major losses that many of their competitors are facing. CEO Daniel Beneš credits the businesses’ success to making investments in stable regulatory environments, with low risk, and high certainty of profit. When asked where he intends to buy up more profit-generating business in a recent interview with 4-traders, Daniel Beneš said “…We are interested in renewable energy sources and regulated sources, where there is a high level of certainty about profit.”

 

Power producers across the pond in the US are looking to do the same. But in a time of general regulatory uncertainty due to volatile and polarised politics, where might these opportunities exist on American soil? According to EIA data, electricity sales in the United States have already fallen or flat lined, five out of the past eight years. Finding new opportunities is already drastically different from how it was in the past, where the biggest decision used to be picking a plant’s location.

 

Going forward, three certainties will guide profit making decisions for American utilities.  First, states that have committed to transitioning their grids to mostly clean electricity sources like California, Hawaii, and Oregon will open new opportunities for investment. These are states that will need more low carbon power sources to phase out their dirtier generation.

 

Second, relatively stable low gas prices and increased gas generation will be the new norm for at least the near-term. Switching fuel generation from coal to gas will likely continue, as new environmental regulations, cheap and plentiful natural gas, and climate goals encourage operators to switch. For the first time, EIA’s forecast predicts that natural gas will provide 33% of generation in 2016, while coal’s share falls to 32%.

 

Third, in February 2016, the Supreme Court ruled that the Federal Energy Regulatory Commission (FERC) has the authority to regulate demand response. Therefore, demand response providers will be able to receive wholesale market prices for displacing existing generation. Traditional generators have been frustrated by demand response since it lowers their profit margins by driving down prices for peak load capacity normally served by expensive, rarely-used, peaker plants.

 

As ČEZ and other power producers continue to face a rapidly changing market in Europe, American utilities are beginning to face similar challenges. As Beneš told 4-traders, “The energy sector is changing in a revolutionary way, and this is happening quickly, regardless of the lifecycle of power plants.” While it’s becoming easier to identify regulatory certainties, it’s harder to put those investments into action. Moving forward, developing smarter investment strategies and streamlining internal operating systems will be essential in building a profitable portfolio on U.S. soil. To do this effectively, power producers will need to consider implementing an energy investment management system to better identify risks, eliminate inefficiencies and provide project visibility. Furthermore, it seems those who can successfully build a greener grid will help accelerate the elimination for the need of dirty power sources, and on par with natural gas in cost, will find a stable and profitable regulatory environment moving forward.