In many ways, 2020 has been like a rollercoaster – one that ends against a brick wall – for most of the world.
The energy industry has fared even worse, with excess supply driven by a production race between Russia and Saudi Arabia, above-normal temperatures, and a sudden, steep drop in demand brought on by COVID-19.
With all this uncertainty, where do energy companies invest their resources in 2021? We see two main areas: sustainability and reliability.
Consumers are rewarding companies that embrace sustainability practices, and companies are responding by setting zero emissions and carbon neutrality targets with aggressive deadlines. In the US, states have mandated similar goals.
Throw in COVID, and companies are looking for ways to boost revenue and cut costs everywhere. What does this mean for energy investors?
We anticipate seeing continued investments from 2020 that reduce energy usage, including lighting retrofits and equipment upgrades. From a renewable standpoint, we see companies implementing renewable technologies, such as solar PV panels.
To comply with state mandates and customer expectations, we expect utilities to continue adding renewable generation and providing incentives for their customers to “go green.”
Finally, we see energy companies investing in renewable energy assets and exploring new technologies to expand the renewable portfolio, such as hydrogen and battery storage.
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To operate, companies need uninterrupted access to energy. While the world has made great strides in adding renewable energy, we are not at the point where we can replace all carbon-based fuels.
We have seen the consequences of surging ahead too quickly in California last summer, where insufficient power supply and transmission triggered rolling blackouts.
Even service sector companies are vul- nerable. In 2018, Delta Airlines had to cancel many flights and lost $150 million in revenue when a power outage shut down its reservations center.
Therefore, we anticipate companies making investments that make them less susceptible to energy outages, including solar retrofits and cogeneration.
We also see energy and utility companies making investments to minimize interruptions, such as adding or upgrading transmission and distribution systems, adding battery storage projects, installing microgrids, and developing additional renewable fuel sources like hydrogen.
Other factors Post – 2020
While this looks like the current path for investment, there are other factors to consider. The first is geo- political risk.
As we are currently witnessing in the US, a change in leadership can significantly impact regulations. The project that looked favorable at the time of approval may not be economical – or even approved – if the rules change.
The second area of concern involves unforeseen consequences of trading one form of energy for another. An example of this is using batteries to store excess power, which addresses sustainability – unless more emissions are produced in manufacturing the batteries.
Similarly, the components used to make batteries are currently sourced from other countries, making the option less reliable – and potentially less attractive.
Now more than ever, energy is an essential component of daily life, and companies will find ways to invest in this resource.
Looking forward, no matter where companies choose to invest, the ability to adapt to a changing environment will continue to be essential for success.