Summary of Pareto Securities’ 26th annual Power & Renewable Energy Conference 2024

The energy transition is continuing at a record pace, driven by higher-than-ever investments in renewable energy. In 2023, investments in solar power were higher than for oil production - for the first time ever.

Renewable investments are increasing sharply, but we need to invest significantly more to meet future energy needs

Christian Jomaas, CEO of Pareto Securities

However, even more investments into renewables are needed to build enough renewable energy capacity. Looking at Norway alone, the power supply surplus is quickly being consumed, driven by consumer growth, electric transport, data centres, hydrogen, and electrification. Latest estimates predict that Norway’s power surplus will be gone by 2028.

We believe 2024 could be a turning point for renewables and cleantech

Lars Ove Skorpen, Power & Renewable Energy Director at Pareto Securities

Interest rates are coming down, giving reduced cost of capital. Meanwhile, inflationary pressure is easing, we are now seeing governments increasing support for offshore wind, and we expect to see further reductions in the levelized cost of electricity (LCOE).

An energy crisis has been averted, but power prices in Europe and the Nordics are here to stay at a significantly higher level compared to the pre-covid level.

Last year was the warmest year on record, with a global temperature of +1.48 degrees above the preindustrial average. We are already very close to reaching the 1.5 degrees, agreed in the Paris agreement, and we therefore urgently need to invest more in renewable energy and renewable technologies.

Naturally, there was a lot of focus on the upcoming offshore wind auction SNII in Norway. Economics looks challenging under the current scheme as previously noted and increasingly communicated also by the involved consortia. During the day, Shell, which is part of one of the five serious contenders, proposed deferring rather than rushing the process at a time when key cost items are still highly uncertain. Norwegian Minister of Energy, Terje Aasland, was expectedly brief in his comments, saying they really hoped for an auction while acknowledging that it is a challenging time for the industry at present.

There was consensus among the hydrogen companies at our conference that the market will continue to grow in 2024. Although large orders have been delayed due to a lack of clarity on support schemes and rising project costs, the companies were optimistic regarding this year. The quality of the pipeline is quoted as better, with more blue chips looking towards hydrogen, although timelines of project conception to FID grows longer.

Demand-side incentives and actual distribution of support capital should motivate more FIDs in 2024. The US is still cited as the market with the most promise in the near-to-mid-term, although the latest regulatory decisions give more momentum to Europe. Most reiterate that scale is most important to drive down costs in the near term, and plans for expansions and growth are still high on the agenda. Overall, optimism regarding future potential in hard-to-abate and hard-to-electrify industries.

Batteries stand out as a clear choice for the transportation sector and are the preferred solution for short-term energy storage. Battery technologies are constantly improving, driving energy density higher and cost down, while infrastructure build-out raises the barriers for alternative solutions.

For renewables, batteries have emerged as an affordable, flexible balancing tool – becoming a pre-requisite and vital for larger projects. This makes the demand-side potential massive, and decades of growth expected ahead. While massive capacity expansions have brought the market into surplus, near-term, most of the capacity is located in China, adding substantial risks for the Western world. Thus, a more sustainable battery value chain in the US and Europe must cope with bold decarbonization ambitions.

The sector has gained recognition as a critical technology for reducing CO2 emissions, and improved government support is driving market momentum with the global project pipeline up ~50% y/y. Governments have aggressive targets, but implemented policies do not fully support this pipeline, with work still to be done on market design and support schemes. Costs of initial projects are high (far above the EU ETS carbon price), and government subsidies and risk-sharing are key for investment decisions, which the presenting companies emphasized.

Recyclers and WtE companies focused on the importance of industrial partnerships to secure input and offtake of output in the next years and to build circular value chains. For many of the listed waste treatment technology companies, 2023 was centred around delivering test volumes and preparing for commercial-scale production; hence, 2024 will be an important year where the commercial viability of the existing setups will be put to the test.

Since the start of 2023, the aggregated market cap of 13 listed recycling and waste management companies in Oslo and Stockholm depreciated by 27%, but the waste treatment technology companies that delivered on communicated targets regained market appreciation (and vice versa) – a trend we believe will persist into 2024.