Sparking a clean energy revival in the US

A return to the Paris Climate Agreement is serving as a catalyst for an acceleration of clean energy investment by US corporates.

A confluence of factors, from public and investor pressure to the steadily declining cost of wind, solar and other clean energy technologies, have made renewables and carbon reduction an important part of a broader sustainability agenda for a wide range of energy players – especially corporates, who made public commitments throughout 2020.

While the ongoing pandemic in some instances temporarily sidelined certain renewable initiatives, it also further exposed the perils of climate change and emphasised the need for companies across sectors to either commence or reignite their sustainability endeavours.

With 2021 underway, a new climate-centric US administration and immediate re-commitment to the Paris Climate Agreement will further accelerate the energy transition and the pace of renewable investment and financing.

Back on track

Helping to incentivise US sustainability efforts is the $35bn in clean energy research and development funding included in the $1.4tn stimulus package passed by Congress in December 2020. As the first major legislation of its kind in years, the aid is intended to spur renewable investment, address grid modernisation and drive funding of other key areas over the next five years. The stimulus also extends federal tax credits for the construction of new wind (onshore and offshore) and solar power plants, as well as tax credits for alternative fuels and fuel cells.  

Ravina Advani, Head of Energy, Natural Resources & Renewables Coverage, BNP Paribas Americas, believes that the Biden administration’s promotion of a more rapid pace of decarbonisation from the outset will serve as an inflection point for utilities, mining companies, oil and gas companies and other public and private investors to adapt their business models.

“We are seeing many of our energy corporates make aggressive transition plans with the goal of meeting net carbon-zero standards prior to or by mid-century,” said Advani.

This has been especially true for utilities, which continue to transition away from coal, whether due to competition from cheap and abundant natural gas, state renewables portfolios or more pronounced environmental, social and governance (ESG) investing and goal-setting.

According to Advani, the uptick in coal retirements shows the extent to which utilities understand that such assets will not be economically viable over the long term, “which is why we’ve seen so many of these companies taking the lead by actively seeking alternative fuel sources”.

Such companies include:
  • Duke Energy, which plans to triple its renewable energy footprint by 2030 and its target of 40GW of renewables by 2050 with 11GW of storage, while closing all of its coal assets by 2030 in the Carolinas;
  • Dominion Energy, which is targeting an additional ~25GW of renewables by 2035 through both mature technologies (solar, onshore wind) and evolving ones (the development of ~2.6GW in offshore wind capacity), along with the closing of its Virginia coal-only assets [1] by 2028;
  • NextEra Energy, which operates as one of the largest capital investors in clean and renewable energy in the world and which formally closed the last coal generation asset of subsidiary Florida Power & Light Co. in December 2020.

Building capacity

Despite the macro and political headwinds over the last several years, sustainable and renewable financing in the North American energy sector remained robust in 2020, accounting for some 22% of regional sustainable/green issuance (around $24.7bn through November 2020).

Dealmaking in the renewables sector was headlined by Avangrid. The Connecticut-based energy provider (majority-owned by Spain’s Iberdrola) agreed to an $8.3bn acquisition of PNM Resources in New Mexico. The transaction will result in one of the largest renewables firms in the world and the third largest in the US (BNP Paribas acted as exclusive financial advisor to Avangrid on the transaction: see sidebar for other notable deals during 2020).

While temporarily slowed due to the economic impact of Covid-19, data from BloombergNEF suggests a strong rebound in sustainable investing in the years ahead, including an estimated $265bn in new zero-carbon capacity investment through the end of the decade in the US (BNEF New Market Outlook, 2019). Among the segments expected to contribute some ~286GW [2] in new alternative energy buildout through the period are:

  • Solar: With consumer costs continuing to fall, demand for utility solar has remained strong during the pandemic, and by the end of the decade is expected to account for ~40% of renewable cumulative installed capacity in the US, with record capacity additions of utility solar expected from 2021 to 2023 (for example, a projected ~16GW of utility solar expected in 2023).

  • Wind: After a number of pandemic-related project delays, 2021 should see a bevy of onshore wind activity, as halted project work is completed and developers take advantage of an additional year of tax-equity eligibility at the highest level. Similarly, offshore wind-lease auctions will also pick up, particularly in areas like the Northeastern US (in New England, offshore wind already accounts for three-quarters of the region’s interconnection request queue, for example).

  • Batteries: The US is poised to be a leader in energy storage investment and, along with India and China, will account for a third of global battery production through 2050. Energy arbitrage is key to the sector’s vitality, particularly in markets such as California, where real-time price spikes can lead to hundreds of $1,000/MWh intervals annually.

Green light

The fact that renewables have remained on track in the US despite a four-year withdrawal from the Paris Agreement underscores the strengthening confidence in the economic viability of these diverse clean energy solutions.

“We’re seeing renewables becoming increasingly cost-competitive relative to fossil-fuel generation,” Advani remarked. “Additionally, investors, limited partnerships (LPs) and financial institutions have in many instances developed very strict policies around carbon-emitting resources, and will continue to make hard sector and client exit decisions. This will create a need to redeploy capital, and renewables check all of the boxes,” she said.

After years of seemingly bucking the trend, the new administration’s rejoining the Paris Agreement will only hasten the move toward renewables and clean-energy spending going forward, said Advani.

“There is no question that having an administration that is so focused on climate change from the outset will be key to unleashing the full potential of renewables in the US.”

Stateside Sustainable Financing

US-based Energy, Natural Resources & Renewables (ENRR) deals closed by BNP Paribas during 2020 include:

Calpine: Houston-based power-generation sponsor secured $1.1bn in financing for its 725MW Geysers geothermal portfolio, for which BNP Paribas served as Coordinating Lead Arranger, Bookrunner, and Sole Syndication Agent.

Avangrid: Northeastern-based energy and utility company secured a $750m, 5-year green bond to support green expenditure, for which BNP Paribas served as Active Joint Bookrunner. BNP Paribas also acted as an Exclusive Financial Advisor to Avangrid (majority owned by Spanish utility Iberdrola) in its agreement to acquire PNM Resources for an enterprise value of $8.3bn, creating one of the largest renewables companies in the world.

LS Power: Leading investment, development and operating energy sponsor focused on power generation raised $300m in financing for its battery storage Bolt Energy Project, for which BNP Paribas acted as Joint Lead Arranger and Joint Bookrunner.

Mosaic: Residential solar and energy efficiency fintech firm finalised $222m in solar-loan ABS financing for its distributed solar activity, for which BNP Paribas acted as Joint Bookrunner.

Cypress Creek Renewables: Top commercial & industrial (C&I) solar developer, operations & maintenance provider, and asset manager based in North Carolina received $58m in the refinancing of its 92MW Stormbreaker C&I solar portfolio, for which BNP Paribas served as Sole Lead Arranger.

[1] Excludes one hybrid plant
[2] According to BNEF’s 2020 capacity forecasts, representing gross capacity additions in the US.

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