Kunal Patel, Head of Partnerships and Structured Solutions at fast-growing energy company Orsted, discusses transformation, trend and technology in the renewables market
What do you see as the biggest drivers of change in the renewables industry at the moment?
Kunal Patel (KP): From my perspective, having a focus on offshore wind, there’s a certain market dynamic in Europe, and in the other parts of the world, where offshore wind is starting to take off in earnest, there’s a slightly different dynamic.
In Europe, we’ve seen prices of offshore wind come down dramatically over the last six years or so, to the extent that we’re seeing projects in the Netherlands and in Germany, for instance, now being constructed on a fully merchant basis, meaning there aren’t any subsidies attached to those projects when they will eventually be built.
And so the future of the industry is how developers will continue to drive down costs and what solutions there are to the fact that you don’t have a sort of essentially fixed price for your power and how you’re going to deal with that risk.
Going further afield, there are slightly different dynamics. In other key markets for offshore – currently Taiwan and the US – we’re still in an area where it’s a relatively new sector. We will see prices come down pretty dramatically, and indeed the first auctions, both in the US and Taiwan, have shown very low cost of energy for offshore wind. But there is still an off-take agreement available there. So, we’re back at more traditional focus areas of building and operating your project as efficiently as possible.
What kind of technologies and trends do you see that fast-growing companies in the sector are interested in acquiring? And what kind of disruptive companies are you looking to collaborate with?
KP: In terms of growth area, we certainly see a role for technology. However, in terms of the digitalisation type agenda, it still remains to be seen what the actual disruptive technology is going to be. I think advanced analytics and automation will be important across both the construction and the operations of our projects.
It’s also likely to play an important part in understanding power grid dynamics a bit better and also downstream customer solutions. Now, that’s not something that is extremely prevalent today and probably the most well-known topic is around smart meters.
Whether there are other technologies that can provide even more disruption, we need to wait and see. There certainly appears to be room in the market for something, because it’s no secret to anyone that renewable energy is intermittent and finding the right demand-side solution would be a fantastic business platform. The question is whether it’s going to be utilities or developers or whether it’s going to be sort of existing technology providers who are going to be the right people to do that.
Respondents say energy storage is going to be most significant to their growth in the next three years. Do you agree and how far advanced do you think the technology is?
KP: It’s certainly a very interesting technology and something that we started to look at as well. We’ve got a couple of energy storage projects ourselves that we’re looking to attach to a couple of our wind farms.
The area where the technology is most obviously useful in the short term is when it comes to providing ancillary services to grid providers in aspects such as frequency response or short-term balancing. They’re clearly still small scale.
So, in terms of removing the need of a base load, which is what some people have been talking about – we’re a way off the technology to be able to solve that problem.
What are the other types of risks affecting growth in the renewables market at present?
KP: A lot of the regimes across Europe and also around the world are auction-based and so you’re seeing increased competition and increased asset prices.
I think there are all sorts of other risks that one can contemplate when you’re talking about the generation of renewable energy – wind risk, operational risk and those sorts of things. I don’t think those have gone away. However, people understand them a lot better, so they’re priced very differently to how they used to be. And I feel people have a more holistic approach to their risk analysis.
Fast-growing companies saying that alliances and M&A are both ways that would be contributing to growth. How do companies like your own make these alliances work effectively and how can they contribute to growth?
KP: I think it really depends on what you’re looking for from your M&A strategy. And we’ve taken a different approach in different markets. Certainly, the broad answer to whether they can be used and can they contribute to company growth is yes.
Our partnership strategy has evolved over the years. In the earlier years of offshore, we used to partner up with other utilities in the sector and share the risks of developing an offshore wind project and constructing and operating an offshore wind project. As the sector matured, we started looking to develop those – maintaining 100% ownership and then selling down to a financial investor which was a more value-creating strategy. At that point, we had to become more comfortable with the risks related to an offshore wind project.
And now as we enter new markets, as offshore wind has expanded outside of Europe and we look at the US and Taiwan, we’ve looked to partner up with local players who have a much better understanding of the marketplace than we do.