GIG: 547 Energy is the renewable energy investment platform of Quantum Energy – one of the largest energy-focused U.S. private equity firms. Can you tell us a little bit about the company, its current priorities and strategy, specifically with respect to Europe?[roundtable-person][/roundtable-person]
Alonso: 547 Energy is the clean energy investment platform of Quantum Energy Partners, one of the largest energy focused U.S. private equity firms. We are headquartered in Houston, Texas. 547 Energy invests globally, and we partner with the best teams to build successful platforms that are active across the energy transition space, which includes but it is not limited to clean tech, energy storage, renewable energy, grid resilience, energy infrastructure, green hydrogen, and energy efficiency.
Europe, specifically, is a priority region for 547 Energy. The latest European climate law sets targets to reduce emissions by 55 percent by 2030 from 1990 levels and to eliminate them by 2050. So, under a horizon where climate will be at the heart of all the policy-making in Europe over the next decade, a player like 547 Energy that is active across technologies – onshore wind, offshore wind, floating wind, solar PV, storage –across business verticals – utility scale generation, distributed generation, infrastructure, technology – and across business segments – development, construction, operation, origination, digitalisation – is very well positioned to generate attractive investment opportunities in Europe.
547 Energy is already very active in Europe.
In the case of Greece, we have a partnership with ENORA S.A., and together we participated in the auctions organised by the Greek energy regulator (RAE) and secured 400 megawatts of long-term offtake agreements for wind energy projects that we plan to build over the next couple of years in different regions in the country.
Moreover, last year 547 Energy launched a platform called BlueFloat Energy that is developing offshore wind energy projects globally, and specifically in Europe, including both bottom fixed and floating projects. Additionally, we recently launched a new platform called Aer Soléir based in Ireland that will be active in Europe and will be focused on developing onshore wind energy, solar PV, and hybrid projects including storage. Finally, we just launched a new platform called NetOn Power, targeting the ground-mount solar commercial and industrial segment in Southern Europe.
Bottom line is that Europe is and will be a priority region for 547 Energy over the next decade.
GIG: You’re widely regarded as one of the world’s foremost voices in the wind energy industry. There were 34 GW of installed offshore wind installed worldwide by the end of 2020. Do you foresee offshore wind energy gaining a relevant share of the energy mix?[roundtable-person][/roundtable-person]
Alonso: I firmly believe that offshore wind will play a key role in helping many countries achieve their existing climate goals. As of the end of 2020 there were around 34 gigawatts of installed offshore wind capacity globally and around 21 gigawatts under different stages of construction. Offshore wind is real and it is here. This is particularly true in the case of Europe, which is the leading region in this technology and as much as 70% of the existing operational capacity is in Europe.
I also believe that offshore wind will be a leading source of new energy driven by two basic reasons: number one is that many markets across the globe, including numerous European countries, Japan, Taiwan, or certain States in the U.S., for example, have passed zero-carbon energy goals, and while these markets still enjoy untapped onshore wind and solar resources, they do not have enough to achieve such ambitious goals. As a result, these markets will turn to the sea and will develop and build offshore energy generation.
Secondly, offshore wind energy is affordable. It's a cheap source of new clean electricity.
The winners of the latest auctions in the UK and France committed to sell offshore wind electricity at prices of around €40 per megawatt hour. This means that offshore wind in Europe is cheaper than building a new gas plant or a new nuclear plant.
So, fundamentally, offshore wind will become a mainstream source of clean energy and it will play a key role in the transition of the energy mix of many markets over the next decade.
GIG: So is it fair to say that offshore wind is becoming more cost competitive than it was, let's say, one or two years ago?[roundtable-person][/roundtable-person]
Alonso: Yes, that’s correct. If we look back 10 years, one can see that the industry has done a tremendous job in reducing the levelised cost to produce energy from offshore wind. The prices for the energy offtake agreements that cleared 10 years ago were high, more than €100 per megawatt hour. Today, those prices have been reduced by more than 70%, driven by recurring innovations in wind turbine technology, such as larger nameplate capacity, longer blades, taller towers, upgraded control systems, effectively making offshore wind technology more productive and reliable, and linked to such enhanced reliability, lower cost of capital chasing investment opportunities.
Moreover, the overall cost of generating energy from offshore wind has dropped dramatically over the past decade supported by the development of the supply chain and the entire ecosystem around the offshore wind industry, including port infrastructure and vessels. I would expect this cost reduction to continue as the industry expands globally and further economies of scale are achieved.
GIG: How has the pandemic impacted the appeal of RES projects?[roundtable-person][/roundtable-person]
Alonso: I think the pandemic caught most of us by surprise. Any large energy project, including solar or wind, faced multiple challenges and disruptions, especially with respect to the supply chain. But the industry adjusted and quickly recovered the momentum it had gained before the pandemic.
During such unprecedented circumstances world leaders understood the need to transition to a zero-carbon economy, and those that were already on board with this transition saw the need to accelerate the process.
In doing so, world leaders found that renewable energy was the best solution to achieve this acceleration due to the fact that onshore and offshore wind, solar PV, and energy storage are the cleanest, the fastest, and the cheapest sources of new energy. They are also the cleanest for our environment for obvious reasons, the fastest to market given the short time it takes to build a project, start producing power and generate sustainable jobs, and finally, the cheapest and most stable for consumers. This has been demonstrated through the outcome of the latest auctions around the world, where wind and solar are being offered at fixed prices ranging between € 0.03-0.05/KWh for 15 to 20 year periods.
So, those countries and regions that are aiming to accelerate their transition to a cleaner economy are betting strongly on the growth of wind energy, solar energy, energy efficiency, and energy storage to help them get there.
GIG: 547 Energy entered the Greek market in late 2019 after securing four 20-year PPAs in Central Macedonia in partnership with Greek-based ENORA. What drove the company to enter the Greek market?[roundtable-person][/roundtable-person]
Alonso: A few years ago, we spent a lot of time trying to identify the best markets in Europe – the markets where we thought we could make a difference and where we could grow with attractive investment opportunities. And it was at that point that we identified Greece as a priority market, driven by three fundamental reasons and an opportunistic one:
The first fundamental reason was that there was a general political consensus in favour of renewables among the main political parties. More importantly, the then new government, led by Prime Minister Mitsotakis, signalled early in his tenure, and very clearly, that transitioning to a cleaner-energy economy was a top priority for his cabinet, and that as part of this transition his administration would encourage the deployment of energy sources like wind and solar.
Secondly, those positive signals were quickly followed by actions. The way Greece promotes the procurement of wind energy and solar energy – through competitive auctions to award long-term offtake contracts – is the approach that makes most sense for consumers, first and foremost, and for investors like 547 Energy. The Greek energy regulator (RAE) acquires – at any point in time when those auctions are organised – the cheapest source of new clean energy the market can offer and does so with fixed price 20-year-long contracts. This means the Greek government is putting consumers first by securing electricity supply at low prices that do not change over two decades, and in doing so, they are offering developers and investors like us 20-year contracts that provide for the certainty we need to raise capital, invest, and build these projects.
The third fundamental reason is that Greece enjoys strong natural resources, wind and solar. All three of these elements led us to believe that Greece had to – and continues to – be a priority market for us in Europe.
The fourth more opportunistic reason was the fact that I personally had a long-standing relationship with the ENORA team; a very experienced, well respected, wind energy and solar energy developer in Greece. And driven by our relationship, 547 Energy and ENORA reached an arrangement to build a partnership that has proven to be quite successful as is shown by the 400 megawatts of long-term sliding feed-in premium contracts we secured in the auctions that took place in 2019 and 2020.
GIG: Almost two years later, what is your assessment of Greece’s RES landscape – particularly from a regulatory and licensing perspective? Has it changed?[roundtable-person][/roundtable-person]
Alonso: When one assesses the current landscape in Greece and compares it to where it was three or four years ago it is easy to see how much the interest in Greece has grown. In my view, this increased level of interest is driven by the clear messages this administration has conveyed in support of foreign investments in key sectors such as energy, and the follow up actions it took and keeps taking to build a pro-business environment in the country. An example are the regulatory changes to simplify and bring more certainty to the licensing processes to develop, build, and operate clean energy projects.
The right adjustments to existing legal frameworks are ongoing and equally important; the Ministry of Environment and Energy is working in collaboration with industry stakeholders to collect experiences, best practices and guarantee that those adjustments are as efficient as possible. These efforts, collectively, have made Greece one of the most attractive markets to invest in clean energy over the last two years.
When one compares how much interest has grown in Greece in clean energy versus how much this interest has grown, during the same period, in other European markets, I would say that Greece is the European market where the level of activity towards clean energy has grown the most.
And that will lead to helping Greece attract a lot of new foreign capital, create a lot of new jobs, and help the country achieve its clean energy goals.
GIG: If we look towards the future, what’s missing? What additional changes would you welcome?[roundtable-person][/roundtable-person]
Alonso: Overall, I would encourage this administration to repeat the successes of the past, to remove the barriers that hinder sustainable growth, and to approve the regulations that promote a vibrant energy sector.
Successes of the past include the auction system through which Greece has procured fixed price clean power over the last three years guaranteeing that, at any point in time, the electricity that is procured is the cheapest, putting the interest of the consumers in front of any other goal.
I would encourage this administration to collaborate with the industry and relevant stakeholders to relieve the sector from existing barriers, for example, by making incremental improvements to simplify the licensing process for new energy generation projects and transmission infrastructure. This collaboration will contribute to the creation of the right regulatory initiatives to support and attract local and foreign investments in Greece.
GIG: The Greek government is preparing the rollout of legal frameworks for offshore renewables, energy storage, as well as a national strategy for hydrogen in the near future. Do you see this creating new opportunities for 547 Energy? If so, in which areas?[roundtable-person][/roundtable-person]
Alonso: 547 Energy is already active in offshore wind through BlueFloat Energy, a company developing offshore wind energy projects (fixed bottom and floating) worldwide. We are also actively pursuing hybrid projects (wind or solar plus storage) as well as stand-alone storage projects. So, for 547 Energy regulatory frameworks that encourage the deployment of offshore wind, energy storage, and other technologies where we are active are highly motivating. We are looking forward to these frameworks, and we encourage the Greek government to engage with the industry to roll them out.
Greece is as a priority market for 547 Energy in Europe, so the right regulatory frameworks will only increase our interest in Greece.
GIG: U.S. Ambassador Pyatt recently shared with us that 547 Energy is poised to become one of the largest wind energy operators in Greece. What is the strategy?[roundtable-person][/roundtable-person]
Alonso: 547 Energy's strategy in Greece is sustained by two pillars. Number one is delivering on the opportunities we have already secured together with our partner. And number two is based on identifying and securing new opportunities within the strategies that we are already pursuing globally: onshore wind, solar PV, in addition to newer technologies like offshore wind, storage, and energy efficiency.
With respect to the first pillar, we are working very closely and successfully with our local partner ENORA. We are in the process of completing the licensing and securing financing with local banks for our existing 400 megawatt wind portfolio. In parallel, we are securing the equipment and the construction services required to build this portfolio and we are doing so relying on Greek contractors.
We have a lot of ongoing activities because once these 400 megawatts are completed, they will position 547 Energy as one of the main wind energy operators in the country.
But we don't want to stop there. We are open to increase our exposure in Greece and our strategy in Greece can only become stronger than what it already is. We look forward to successfully investing a lot of capital in Greece over the next decade.
GIG: We are living an unprecedented time underlined by the growing pressures of climate change and the need to urgently transition our economies and energy systems towards sustainable carbon neutral models. What are the biggest challenges in transforming our energy systems?[roundtable-person][/roundtable-person]
Alonso: I would highlight three challenges to sustainably transform the energy sector.
The first challenge is market design. The energy market was designed to price electricity based on marginal cost of generation, in other words, based on the cost of the fuel required to produce the last megawatt hour of energy demanded by the market. However, wind and solar energy are technologies that do not use or transform any fuel to produce electricity. If we are heading towards a future where the energy markets will be predominantly covered with electricity produced by technologies such as wind, solar, and balanced with batteries, the current market design will not serve to properly remunerate these sources of electricity once the fixed price offtake agreements lapse.
The second challenge is infrastructure. If we want more wind and solar energy, we must want new transmission infrastructure to collect such energy and deliver it to consumers. If we want more offshore wind, then we must invest in our ports. If we want more electric vehicles, we must push to build a strong network of charging stations. Infrastructure needs capital, and capital will follow those markets that offer the right regulatory and economic frameworks.
And finally, and most importantly, the third challenge to build a vibrant energy sector is talent. This is always a challenge for any sector that grows so much so fast. This talent exists.
As an industry, we have to seize the talent that already exists in the traditional side of the energy space and facilitate their transition to the clean energy space.
This is a challenge that the industry can tackle in partnership with governments. We need to work together to guarantee that we are properly training and transitioning existing energy sector professionals to this newer chapter of the energy industry.
GIG: How do you see 547 Energy contributing to this transition?[roundtable-person][/roundtable-person]
Alonso: 547 Energy is a global investor focused on the energy transition space. We are investing across technologies, and we are investing across business segments. So, we not only bring the capital to invest in the energy transition, but we also bring the international presence and a deep expertise to help identify the right opportunities to accelerate the energy transition.
We pride ourselves in working closely with the relevant stakeholders in guaranteeing that the regulations that are put together will attract investment, lead to vibrant economies, and help achieve clean energy targets in a sustainable manner putting the consumers first.