Blog post

Green Giraffe reflection and 2024 key themes

18 December 2023

2023 has been another fascinating year for the energy transition and Green Giraffe has played its part! With COP28 behind us and 2024 about to start, we wanted to reflect on the key moments from this year and also to identify what critical trends we see coming up for 2024.

Top down, 2023 represents the halfway point between the 2015 COP Paris Agreement and 2030, by which point we should have halved our carbon emissions. We’ve deployed a lot more renewable energy, particularly in the last few years, but carbon emissions keep increasing. Encouragingly though, it looks like we will achieve peak oil and peak coal prior to 2030, with peak gas – the transition fossil fuel – coming in the mid-2030s. The momentum is clearly behind wind and solar as the key decarbonisation technologies and although some colleagues disagree, it’s hard to see that changing materially in the short to medium term, irrespective of policy head- or tail- winds (including a potential Trump re-election).

Financial markets

There have been many challenges in 2023, not least with wars disrupting economies, energy markets and financial markets (not to mention the awful human consequences). We’ve seen inflation and commodity prices skyrocket and consequently, interest rates were ramped. These trends created an environment of scarcer liquidity, especially on the private equity side. While monetary policy has helped get this macroeconomic situation under control, the  cost of energy (LCOE) of new capacity across the energy world has increased. With a zero marginal cost of energy, and consequently a disproportionate influence of construction and financing costs in its LCOE (compared to conventional power), renewable energy has been particularly impacted. Some counterbalancing fiscal or incentive policies have played a key role to ensure continued investments, such as the Inflation Reduction Act (IRA) in the US, which really started to bite this year.


On the ground within the industry, we can probably summarise 2023 with three symbolic trends: electric vehicles, supply chain, and oil & gas. EVs stepped up, supply chain stepped aside, in part at least, and O&G stepped back:


  1. Electric vehicles

This is taking off in a big way now. According to Euromonitor’s Mobility forecasts, 25% of all new passenger car registrations are forecast to be electric in 2024, exceeding 17 million units in sales globally.


Critically, charging point deployment is happening at scale in many key markets with revenue models being largely understood now. Green Giraffe has seen a number of deals in this space in 2023 and we’re closely watching both the emergence of electrification of heavier vehicles and the 300+ kW chargers needed for that, and the deployment of chargers in the 30-50kW range (which are cheaper than bigger chargers and more readily compatible with existing infrastructure for light vehicles).


  1. Supply chain

Photovoltaics came back with a boom! After scarce supply in 2022 pushed panel prices high and dampened PV roll out, prices have now fallen significantly with greenfield investment picking up accordingly. Wind on the other hand had a more difficult year; supply chain constraints, when combined with the macro environment, have caused some to put the brakes on. Many developers have retrenched to prize assets and geographies and we’ve seen significantly shallower investment markets, with prices adjusting downwards accordingly. Development has been curtailed even in traditional stronghold markets.


  1. Oil and Gas

Although this captures a huge range of companies and countries, it’s fair to say that by and large, there has been a withdrawal of most of the more progressive firms from the transition to their conventional business. Oil prices are driving this. There’s been some high-profile points through the year, some of which are discussed in this article. The most recent one being a rejection by Origin’s shareholders of a proposed acquisition by Brookfield who wanted to pivot the conventional energy utility to renewables at a more aggressive rate. Nobody is willing to give up the profits first it seems.


So there have been quite some headwinds, and yet we are set to install over 500 GW in 2023, meaning there is good reason for climate optimism, and a large market for capital deployment. That said, some critical cracks have shown through which are yet to be fully addressed; Siemens Gamesa facing issues, Orsted having huge asset write-offs in the US and the EU’s response to the IRA are three high-profile examples. So while we can be optimistic, we need to be cautious, like back in the early days of the renewables industry, if I dare say.


Let’s consider what we forecast as key themes for 2024 then; we’ve limited ourselves to five topics which means some big topics such as power prices, carbon markets, hydrogen (and its derivatives), biofuels and the role of Big Oil unfortunately didn’t make the cut:


  1. Wind’s supply chain

The main proponents have shouldered too much of the burden of reducing LCOE to date and are rightly pushing back. Encouragingly we now generally have the technology for both onshore and offshore that enables the respective LCOEs to be below conventional power; focus therefore needs to be on deploying existing technology.


With suppliers like Siemens and Vestas being more cautious in their approach, increasing focus has turned to the potential use of Chinese supply, particularly in offshore. We’ve had this discussion with many clients. More than 60% of wind technology comes from China (solar and batteries are closer to 80%) but barring one small site in Italy and the Chinese domestic market, no Chinese turbines have been installed offshore. While this cheaper option looks tempting in the current market, we do not expect any to be banked in offshore wind in 2024 and don’t see that in any of our deals for the foreseeable future either.


  1. An easing of the challenging macro-environment

With inflation coming under control, interest rates are likely to be pared back. In turn, bond prices should recover, meaning much stronger equity allocations from institutional investors in 2024, contrary to 2023 (with rising fixed income prices, institutionals will need to invest disproportionately in equities to restore their allocation ratios). This should increase liquidity and push riskier money further upstream, adding additional firepower to the solar sector and – when combined with an initial easing in the supply chain – moving momentum back into wind development.


  1. Grid & energy efficiency

Along with easing of the planning process, grid is a critical bottleneck and has been underfunded year on year. In 2022 we spent $4 in energy transition investments for every $1 in grid. Grid investment needs to increase if we are to accommodate the renewable energy capacity planned (potentially 11 TW by 2030 if COP targets are met).


It’s also important we explore ways of reducing the consumption footprint of consumers on the grids. We are indeed seeing more platforms that are able to improve in-build consumption of energy through integrated assessment and solutions to decarbonise, with a combination of energy efficiency and local energy production launching the era of “negawatt” operations.


  1. Revenue models for batteries mature

The need for balancing is clear and some markets are leading the charge, namely the UK, US and Australia. Deregulation of the revenue streams required to support storage investment should continue, progressively unlocking more markets in 2024. Debt financing of these battery assets, even if co-located, remains a niche activity though and progress needs to be made in unlocking this debt capacity if the sub-sector is to reach its growth potential.


  1. Electrification of heating and cooling

This is our wild card. We’ve seen district heating developing in pockets and electrification of heating/cooling in individual buildings rise in some markets. This is likely to be a big area for future capital deployment in our sector and we’re going out on a limb to say this will really move forward in 2024, coming more centrally on to the radar of infrastructure and renewables investors.


The overall result is that we expect to see the beginnings of a recovery in the wind sector in 2024 with solar powering on. Battery roll-out will mature but remain relevant in limited markets for now, EVs will continue their charge, particularly in developed markets and hopefully, we’ll see a lot more investment in grid and the on-site technologies that ease pressure on those grids.


For now, it’s back to work for us as we keep on closing out deals ahead of the end of 2023!


Please let us know what you think: where do you see things differently?