Our latest whitepaper produced in partnership with K2 Management, identifies trends and developments in the pre-construction and development phases of projects in the fast-growing renewables sector, based on data gathered from some of the most innovative wind and solar projects in Africa and globally.
We worked closely with K2 Management, a global sustainable energy consultancy, in defining the key issues, trends and developments across some of the most innovative wind and solar projects that have been worked on throughout 2017-2018.
A number of these trends are based on data gathered first-hand on client projects and some are observed by our leading technical, commercial and market experts from K2 Management and JLT.
These projects involve a diverse range of clients including investors, financiers, developers and utility companies who we have worked with in the pre-construction phase of their projects.
The following five trends are explored in detail within this whitepaper:
Emerging markets are transforming their energy industries at an unprecedented pace. In 2015, renewable energy investments in the developing world overtook those in the developed world for the first time and Latin America, in particular, has become something of a litmus test for how quickly markets can grow.
- Investors have money to spend but a lack of projects in which they can invest
- Investment in emerging markets such as South Africa are at risk if long development phases continue
- Insurance is being used to reduce technology and political risk.
During the past five years, 50% of renewable energy claims have been weather-related and the cost of insurance for natural disaster risks is increasing. 2017 was one of the most expensive years on record for natural catastrophe losses.
- 50% of all insurance claims are weather related and impacting insurance costs and availability
- Consideration of weather risks in the design phase can reduce risk and increase return on investment.
Between 2015 and 2017, the number of projects in which K2 Management undertook computational fluid dynamics (CFD) for its clients rose by 440%, highlighting that both investors and developers are investing in more detailed analysis. They are looking beyond the industry standard linear flow model.
- Number of projects developed used CFD to strengthen business cases increases more than 400% in two years*
- Bigger projects onshore in North America means a bigger focus on uncertainty for developers and investors
- Reduced uncertainty is essential on second-tier sites where conditions are less optimal.
* based on projects that K2 Management has delivered CFD services to between 2015 and 2017
The wind industry is more than 20 years old and projects are scaling up – both in terms of technology, with larger turbines, and project size. Larger projects can lead to bigger or more risks and developers but investors remain risk averse despite experience and learnings.
- Understanding and accepting CapEx risks on scaled up projects can give project control and a robust business case
- Freezing out smaller investors on price could stifle innovation in energy projects
- Lower cost components isn’t the only option to drive down CapEx costs.
Insurance legislation and regulation barriers to investment are common in emerging territories, from the stability of governments and political regimes to the stability of the off-taker. These considerations often directly impact the market’s attractiveness for investment.
- Power purchase agreement (PPA) back-up insurance is becoming mainstream in emerging markets thanks to a push by lenders
- Moving regulation goalposts is putting pressure on emerging markets.