The POWER Interview: A Renewed Shift in Energy Investing

Companies involved in energy production continually look to maximize their investments, and today are tasked with navigating increasingly volatile energy markets.

These companies must choose where and how to compete as the world transitions to a low-carbon future. Where are the best opportunities for investment? How important is seeking out positions that reduce exposure to climate change, as well as reducing the risk of stranded assets?

Many firms, particularly those players in the oil and gas exploration space, want to diversify their operations, and improve their economic foundations. They recognize the reality of the global push for renewable energy even as fossil fuels remain important.

Ahmad Atwan, the Houston, Texas-based founder and CEO of VC Fuel, provided POWER with his insight on today's investing environment. Atwan's group provides venture capital for clean energy. Atwan also leads Clean Energy Services (CES), a supplier of cranes, operation, and maintenance services for Texas-based wind power and energy storage. He previously worked for Morgan Stanley, BlackRock, and Boston Consulting Group, among others.

POWER: What factors do you see driving capital growth in renewable energy investments?

Atwan: In my view, there are two main factors. One is that technology has made solar and wind often the cheapest source of electrical generation. The deals make sense on paper, even before government subsidies. We've moved from a situation where tax credits were the predominant force driving the market, to one where renewables are often the most cost-effective solution and the incentives make these investments even more competitive. We've started realizing that this is a real space, and it's here to stay, regardless of your perspective on oil and gas versus renewables.

The second factor is investor appetite. When I was at Morgan Stanley and BlackRock, our investors were generally pension funds and university endowments, as well as global players like sovereign wealth funds. As I was fundraising and meeting with them, the trend was first gradual, around 2015-2016, then it snowballed. By 2017-19, our investors were telling us they needed more renewables deals in their portfolio, that their asset allocations were unbalanced in terms of too much oil and gas and not as much renewables. It's not universal that all of our investors said that, but it was a majority.

POWER: Will renewables replace fossil fuels as a baseload source of electricity generation?

Atwan: The most exciting aspect of the renewables industry, to me, is that we've seen enough technological breakthroughs in solar, wind, and especially in battery storage, that we now see a path over the next few years to have renewables be a baseload power source. And that ends up being an absolute game-changer.

The only argument really against renewables now, given that they have become very low cost, is that they don't run 24/7. The wind doesn't always blow and the sun isn't always shining. So we need a backup source of power whenever we do anything for our society. That backup used to be coal, and now it's predominantly natural gas. And I still think natural gas will be needed for many years in the future. The missing element that bridges the gap in renewables and makes it 24/7 is batteries. That's something we're spending a lot of time analyzing and investing in, including with our new firm Clean Energy Services, which supplies operations and maintenance for energy storage as well as wind projects.

POWER: How did the Inflation Reduction Act change the situation?

Atwan: The IRA created the first tax credit for standalone battery storage, the only renewable sector that didn't have tax credits. It also created domestic content requirements, which means a lot of these batteries now have to be made in the United States. So even if you're a Korean firm that wants to make batteries, it's better to make them here with domestic content.

All those tailwinds, plus the technology innovation that's happening and the amount of R&D that's going into it, are allowing our batteries to be longer and longer duration, and more robust. We can see a world now in the next five to six years where renewables become a baseload power source.

POWER: What issues are limiting the sector's growth?

Atwan: I think probably the biggest vulnerability, the thing that hasn't been addressed as much yet, is the electrical grid. We're going to test it in the next two to three to four years as all this new renewable generation comes online, and generation mixes and new standalone storage come into operation. There needs to be a lot more investment in it. I'm not necessarily for big government spending. The infrastructure bill was just $2 trillion and the IRA was more than $500 billion. Despite $2.5 trillion total, there was not sufficient investment in upgrading our transmission grid.

That's not something that just a couple companies can achieve. Some companies are actually trying to build their own high-voltage transmission, transmission lines to get the wind from the Midwest and send it around the country up to places like Chicago, or the East or West coasts. And those guys are doing the Lord's work. But it takes a ton of time, a ton of permitting, and no one has enough capital to solve the problem. It is a national issue.

Maybe there will be another bill in the future where they include transmission as a centerpiece, but unfortunately, my guess is we're going to have to learn the hard way. We will keep having unforeseen issues like winter storm Uri in Texas in 2021, or the summer power issues in California this year, and eventually there will be a wake-up call. As we see in a lot of parts of our society and economy, it's only after the disaster that people realize the extent of the problem.

The second challenge will be developing and retaining labor to operate all the new renewable facilities being developed. How do you make team members feel like they're long-term aligned with your vision and become long-term partners? The two fastest-growing jobs in America right now are wind technician, which I think is more than 100% annual growth, and solar installer, which is near 100%. That trend is projected to continue over many years, doubling every year.

POWER: What can companies to do solve the labor shortage issue?

Atwan: At our company, Clean Energy Services (CES), a unique thing we're doing is partnering with Houston Community College to sponsor their wind technician program. They turn out 100 wind technicians a year, and we'll take those technicians after having sponsored them and put them out in the field. These types of programs will be indispensable in developing the labor supply necessary for renewables to continue growing at their current pace. We're also launching similar initiatives with veteran retraining programs, which helps our vets get well-paying jobs in an industry that needs fresh talent.

POWER: Other than reductions in greenhouse gas emissions, what benefits will we see from developing renewable energy technologies?

Atwan: Renewables will really benefit us as Americans, all of us, long term. Number one is energy resiliency-if you have integrated renewables sectors that power key industries and power cities that combine wind and solar with battery; if you have other industries, like a vibrant green hydrogen industry that helps power utility plants, forklifts, or many different applications, you're creating kind of a moat around your energy industry to make it resilient in the ultimate sense that you're not reliant on anyone else around the world. You're relying just on yourself and your own domestic talent and manufacturing capacity and everything you have.

At CES, for example, we're deploying technologies to track renewable generation and energy storage data in real time to ensure grid uptime and stability. These technologies benefit all Americans by helping ensure reliable and cheap power over the coming years. No country is better positioned than the U.S. to achieve this, and that's why we're so laser-focused on this issue at our companies.

That's what the IRA bill that passed in the summer was meant to encourage, I think: If people see this less as an us vs. them," oil and gas vs. renewables, but rather as a key component of us becoming truly energy independent, creating tons of jobs, there will always be in our lifetimes an oil and gas industry that's vibrant. We'll need to work together to make our energy supply resilient, and I think that's a mission that all Americans can pull for together.

-Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).

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