2022 Power & Utilities Conference: Renewable development and growth opportunities

At our annual Power & Utilities Conference, there was a resurging focus on Canadian renewable development opportunities. Despite volatile market conditions, presenters from across the sector articulated a still-compelling growth opportunity set and spoke to broader tailwinds. These include widespread decarbonization targets (at corporate, municipal, state/provincial, and federal levels), a renewed focus on energy security in tandem with the Ukraine/Russia conflict and ongoing levelized cost declines for renewable power and energy transition technologies.

For renewable independent power producers (IPPs), there were several recurring themes:

1. A renewed focus on Canada for organic development opportunities. Except for Alberta, domestic renewable development activity has been quiet in recent years. Hydro-Québec recently unveiled aggressive mid-term renewable procurement plans and several IPPs are optimistic that Ontario and B.C. will eventually follow suit.
2. Stabilizing project economics led by a favourable power price environment. Strong wholesale power prices and a robust renewable power purchase agreement demand from corporate counterparties have led to much-improved contracting/re-contracting terms, which yields decelerating pressure on development returns.
3. Increased focus on capital recycling to fund a portion of early-stage growth initiatives. With moderating trading multiples and a strong bid for operating renewable assets from private buyers, planned sales of de-risked operating assets and/or advanced development projects are an increasingly popular financing source for early-stage growth opportunities.

Innovation is core to utility strategy. Utility companies see investment opportunities related to decarbonization and electrification but require certainty about government policies and regulation before adding projects to utility rate bases. Cost inflation has not been significant to date, although the expectation is that the regulatory compact will continue to allow companies to recover prudently incurred expenses from customers over time. Customer affordability and service reliability need to be maintained as cleaner energy is introduced to the grid. Some flexibility and smoothing of timing of rate increases could ensure rate increases remain modest and steady.