Skyline Renewables and the future of green energy

Covid-19 has upended assumptions and accelerated timescales. Environmentalists had expected the next round of UN climate talks, originally scheduled for November, to mark the next stage of progress; but the moment has already arrived. The economic havoc wreaked by Covid-19 has turned western states into powerful agents of potential change.

Across the world, government’s strength to influence has never been bigger. Many experts argue that there is a necessity to also deal with the other crisis: to make a transformational leap towards a sustainable society that enables us to keep the world below dangerous warming. How we face this emergency could set our climate trajectory for thousands of years to come.

At a time when much of the global economy is in crisis, renewable energy (wind and solar projects in particular) has proven crucial. According to the International Energy Agency (IEA), renewable energy is one of the few sectors that has managed to weather the devastating effects of coronavirus, with new deals and new records being struck, even while the rest of the world has been grappling with the coronavirus pandemic.

Wind and solar have not escaped the pandemic completely, with a number of renewable energy projects being delayed due to supply chain problems and other issues. Financing costs have also increased. Nevertheless, the collapse in demand for fossil fuels means renewable energy will play its largest ever role in the global energy system this year. 

Despite it recently shifting to the fore, green energy has long been a focus for Ardian’s Infrastructure activity. 

In early 2018, Ardian created a partnership with the experienced Martin Mugica, President & CEO of Skyline Renewables and his team. Skyline Renewables is based in Oregon in the Pacific North West of the USA, where the effects of climate change have been laid bare recently by the 2020 Oregon wildfire. Under Martin’s leadership, the company has grown to manage more than 800 MW of wind projects, delivering on an ambitious business plan to create a leading renewable platform in the US. Martin was formerly President & CEO of  Iberdrola Renewables (Avangrid, United States), managing a team exceeding 700 people and 6 GW capacity that generated over $1 billion in sales revenue annually. He holds more than 20 years’ experience building infrastructure projects in the Middle East, Eastern Europe, South America and Northern Africa.

We recently spoke to him about the future of his sector: 

Where is the renewables industry in the context of the current health crisis? 

We’re probably coming to the end of an era of macro-economic stability, dating from 1980-2020, when things were left to the market. We are seeing nature’s power and things can get a lot worse. We have the potential for a 4th industrial revolution now and this will be helped by the fact that renewables and eco alternatives are no longer poorer products. In fact, they seem to be the best way to keep our living standard sustainable along with that of the planet. The future is now bright for my sector. 

Is it possible that a paradox might occur: fossil fuels at rock bottom prices yet sustainability has risen on the agenda?

Prices may be low currently but the future for gas, oil and coal is now very uncertain. Just on the cost issue - irrespective of how low fossil fuels dip - the marginal cost of renewables is always going to be lower as our fuel cost is zero  without subsidies and negative with subsidies. In a country with limited public transport like the United States, the car is a major driver of energy consumption and we expect demand for electric cars to increase rapidly. I can see 50% of American vehicles being electric by 2030. To really fulfil consumer expectations, electricity to power these vehicles also needs to be non-polluting, which makes renewables even more competitive.

What are the implications (current and future) of the ongoing US-China tensions and the upcoming US presidential elections for the renewable energy sector, and for Skyline more specifically?

Energy is political. It  is a strategic resource. You don’t want to have to rely on a foreign country for something that is critical to national security. Some of this nationalism is rational, and some completely irrational. But you have to be careful. The world and globalisation have become less predictable. If clean renewables can, on home soil, offer a competitive price of $20-30 per MW hour then we have many of the cards in our hand.

Are we looking at incremental changes in the generation of energy or is a big leap forward just around the corner with battery or hydrogen? 

Aside from politicisation, one of the most important challenges for renewables is the lack of dispatchability. In other words, they only generate power according to available sun and wind, and not necessarily when there is a need to cover demand. A very sound solution is to get solar, wind and storage working together. The state of Texas is a great example of generation profiles complementing each other and reducing the amount of storage needed. You have more electricity coming from wind when solar is not producing and vice versa. Adding storage creates a clean and dispatchable power generation facility. I do expect this to happen more and more as the alternative (other than hydro, which is very limited) is increased use of fossil fuels.

Regarding storage technologies, I wish hydrogen was already easily available as it could make it possible to store energy in very large amounts. This would change the way the industry works. It is very encouraging to see efforts to develop hydrogen by governments and companies and I believe it will pay off well in time. Battery technology is improving all the time with costs reducing and the simplicity of operation is a huge advantage against hydrogen. However, I think that after hydrogen gets to maturity batteries will very likely be used in vehicles and other applications as better value than in power plants. Hybrid applications are growing rapidly and the ability of grids to adapt and advance to enable battery use for the short term and storage use in general short- and long term will progress.

Nuclear remains problematic - it’s the opposite of wind in that you simply cannot start and stop fast enough. It requires days, unlike other technologies such as wind, solar, hydro or even gas. It is very difficult for nuclear to compete in a market with cheap renewables that drive prices below their own costs without the ability to stop the bleeding when prices are too low. Nuclear plants are forced to produce at a loss very often. Additionally, the treatment of its residue products remains risky and the costs are vast even after being heavily subsidised. Renewables are here, now, predictable and available at a good price.

What is likely to happen to global energy demand post-Covid?

I expect globally energy demand to recover and renewables to increase their share. I estimate that renewables will accelerate their penetration moving from 10% of US energy coming from renewable energy at present to 20-30% in five years. It’s doable. We have, so to speak, the wind behind us. 

Could you talk us through how the Skyline Renewables platform has developed in recent years and some of your key milestones to date? 

After Skyline’s incorporation in early 2018,  we spent the rest of the year building an initial portfolio of more than 800MW. The acquisition of a portfolio of four projects in early 2019 diversified Skyline’s footprint by moving out of Texas. 

In 2019, with Skyline already generating stable cash flows we created the basic structures of the company, accounting, asset management and systems that were added to the initial M&A ones. We also initiated the optimization of our portfolio, internalizing some activities that were previously executed by the projects (e.g. non turbine maintenance and operation). We also implemented and monitored safety policies and started to actively manage risk exposure associated with energy derivatives that came with some projects we acquired.
 
So far this year, we’ve been looking at ways to diversify into solar and to start building Skyline construction capabilities. Since Skyline’s creation, the ongoing support and partnership with Ardian Infrastructure has been a key ingredient in our development as a renewable energy platform.

What do you see as the main challenges for the renewable energy market in the US?

As far as future challenges are concerned, I think the biggest in our sector is the politicisation of science. A significant proportion of the US population still do not believe in climate change. But there are grave perils in avoiding facts.

A key challenge for all renewables is integrating a non-dispatchable product into the grid in North America. But management of the energy infrastructure is improving. There is increased appetite for hybrid systems that improve the balance in generation profiles. We are seeing a push for initiatives which use artificial intelligence (AI) to optimise is the balance of different supply sources and demand, including demand response, resource adequacy and storage. This  will likely grow and become the final game changer in the industry as we shift from a commodity that needs to be produced and used almost at the same time to one that can be stored for later use. For years it was difficult to find buyers other than utilities for renewable energy, but that’s changed and now we’re seeing bigger and bigger projects with commercial and industrial customers that are a significant part of the market. I hope and suspect a carbon tax will happen eventually – I’ve advocated its introduction since I came to the United States. The US economy is in a delicate state and the deficit is growing. 

What are the main differences between the European and North American renewable energy markets (i.e. stage of development, competition, political environment)?

In terms of regulation the two markets are very different. In Europe, governments had led the way via subsidies whereas in the US, the adoption of renewables has been market-led. The US is more prone to private initiative with reduced government involvement, while in Europe governments clearly want to actively participate in the development.  In Europe there is more effort in analysis before the move, while in America companies tend to act and move fast and then change course after the move, if needed. There are also more opportunities, better resources, more availability of land for projects and bigger individual markets for the power. Europe has higher prices for renewables and more active support from government bodies. The risk profile is probably better in Europe as more value comes from regulation. The US has more size but is more constrained in terms of risk-reward. Competition is very high in both markets -  there are all kind of players, from small developers to huge utilities. 

In terms of the political environment as of today, the US is more challenging and there is still significant denial of climate change.  In Europe there is a wide-spread consensus, shared also by most Americans, that Global warming is not only real but one of the biggest challenges humanity is facing. This of course reflects in the involvement of government in promoting and supporting the development and implementation of renewables. Most importantly Renewables are no longer a poorer product - customers are seeking them out. Renewables are unquestionably the answer for our planet.