Decarbonizing energy infrastructure

Seizing a moment of unprecedented challenge and opportunity

Pat Kratus, Managing Director, Head of Technology Investment and Corporate Banking, October 2022

<p>Decarbonizing energy infrastructure</p>

Despite the daunting nature of the climate crisis, leaders in the renewable energy space are both optimistic and enthusiastic about the future. Can carbon neutrality be beat by 2050?

In 2021, the Biden administration set the ambitious goals of reducing greenhouse gas emissions 50% across the U.S. by the year 2030 and achieving a carbon-neutral economy by 2050.1 With renewable energy like wind and solar currently generating only about 12 to 15% of U.S. electricity, it’s clear that reaching these goals will require significant innovation and transformation in the energy sector.

Where is the renewable energy sector focused in response? To find out, Sophie Karp, KeyBanc’s senior analyst covering clean technology, alternative energy and utilities, moderated a panel at the 2022 KeyBanc Capital Markets Technology Leadership Forum on decarbonizing energy infrastructure.

The panel featured three top executives in renewable energy: Guy Bentinck, chief financial officer of Hydrostor; Tom Gelston, senior vice president of finance and investor relations at FuelCell Energy; and Kenton Harder, vice president of corporate development at Catalyze. They shared insights and predictions on the future of renewable energy and clean technology, implications of recent legislative changes, and the expanding market opportunity in this dynamic sector.

 

Technology is the driving force behind clean energy innovation

The panelists represent a variety of approaches to clean energy innovation. Technologies they cited as crucial to decarbonizing energy infrastructure include:

  • Distributed generation: Distributed generation (or “DG”) refers collectively to technologies that generate electricity at or near the point of use. Distributed generation can power a single home or business or be part of a microgrid serving an industrial facility, college campus, military base or other large entity. Distributed generation is especially important due to the high costs and other challenges associated with building energy transmission infrastructure, notes Gelston.
  • Energy storage: When most people think of energy storage methods, they think of batteries. But adopting renewable energy on a larger scale requires far more robust storage capabilities than batteries can offer. Long duration energy storage solutions that are currently available include fuel cells and compressed air energy storage.
  • Carbon capture: Because the transition from fossil fuels to clean energy sources will not happen overnight, carbon capture technology will be critical to reducing emissions in the interim as the country adopts new infrastructure and shifts away from carbon-based power sources.
  • Software: In addition to the technology that generates energy, software and digital tools will play an important role in managing the development, integration and operation of clean energy infrastructure.

 

Unprecedented government support for decarbonization

In the U.S., energy security and climate change investments are a major component of the Inflation Reduction Act of 2022 (IRA), signed into law by President Biden in August. These provisions constitute the U.S. government’s largest investment in climate change solutions to date.

“I think collectively, we're at a time where policy support has never been greater. We've had a number of false starts – in clean tech or even specifically the fuel cell market – but I think the amount of support we're seeing in the U.S. and internationally is unprecedented,” observes Gelston.

The clean energy provisions in the IRA comprise billions of dollars in tax credits, grants, loans and other spending, including more than $60 billion for on-shoring clean energy manufacturing and transportation; $30 billion in loans and grants to accelerate utilities’ transition to clean energy; $6 billion to reduce emissions from large industrial emitters; and $9 billion for Federal procurement of American-made clean technologies to create a stable market for clean products.2

For companies operating in the clean energy sector, the IRA is a game changer. “We will benefit from investment tax credits,” says Bentinck. “They start at 5%, but depending upon factors like location and union participation, those credits will go up to as high as 30%. And they will have a massive impact on the returns on our projects.”

Harder adds that tax credits for projects in low-income communities and opportunity zones, as well as for products manufactured in the U.S., will provide additional support to companies operating in this space.

 

Market opportunity meets determination and optimism

The U.S. energy market is approximately $425 billion per year, as measured by electricity sales. Internationally, sales are well into the trillions. Between persistent, massive demand and mandates from governments and policymakers around the world, the opportunity for renewable energy providers and adjacent businesses is enormous—and growing.

The Long Duration Energy Storage Council estimates a need for between $1.5 and $3 trillion worth of energy storage worldwide to achieve net carbon neutrality by 2040.3 Bentinck points out that if the energy industry can deliver enough storage to meet that demand, it could eliminate about two gigatons of carbon dioxide per year, which is equivalent to the annual emissions of two-thirds of all cars on the planet.

Gelston adds that based on FuelCell Energy’s product pipeline and the billions of dollars allocated to clean energy in the recently passed IRA, the company expects to grow from $70 million in revenue today to more than $400 million by 2025 and reach more than $1 billion by 2030.

Despite the daunting nature of the climate crisis, leaders in the renewable energy space are both optimistic and enthusiastic about the progress their ventures are making. “Right now, I think we're at a unique stage, and we’re ushering in a lot of new thinkers in this generation,” says Harder. “As we welcome them into the industry and really try to advance their thought processes and ideas, I hope to see us beat that goal of carbon neutrality by 2050.”

To learn more about opportunities in the renewable energy sector, contact your KeyBanc Capital Markets investment banker or visit www.key.com/energy

 

About the 2022 Technology Leadership Forum

The 2022 Technology Leadership Forum attendees included 170 institutional investors, 124 private equity/venture capital and corporate development investors, 72 public companies and 82 private companies. The agenda included 56 Fireside Chats/Presentations, 11 thematic panels, 8 industry specific spotlight sessions, 3 banking workshops/industry deep-dives and 5 Keynotes.

1

Whitehouse.gov.  “FACT SHEET: President Biden Sets 2030 Greenhouse Gas Pollution Reduction Target Aimed at Creating Good-Paying Union Jobs and Securing U.S. Leadership on Clean Energy Technologies.” April 21, 2021. 

2

Democratic Caucus of the United States Senate. “Summary of the Energy Security and Climate Change Investments in the Inflation Reduction Act of 2022.” Accessed Sept. 14, 2022. 

3

Long Duration Energy Storage Council. “What and Why of LDES.” Accessed Sept. 14, 2022.

This article is for general information purposes only and does not consider the specific investment objectives, financial situation, and particular needs of any individual person or entity.

KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp® and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A.

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