New money targeting renewables poured in throughout 2019 across North America, and transition-related transactions were plentiful. US university systems are keeping in step with this trend as sustainability targets are brought front and centre. A small number have established explicit targets for usage reductions and efficiency gains. Others have launched projects to transform their energy sources and consumption habits.
According to an April 2019 report by thinktank Environment America, Harvard University is aiming to go carbon-neutral by 2026 and fossil fuel-free by 2050; the University of Hawaii is committed to producing as much renewable energy as its campuses use by 2035; and the University of California is aiming to go carbon neutral, in both its buildings and campus transportation fleets, by 2025.
Empowering universities
The report noted that buildings consume more than four-fifths of the energy used on campuses and that improving their efficiency could cut overall campus energy use by up to 60 percent. Although many campuses have old buildings, the report suggested that when universities look to construct new ones they can employ advanced building practices, appliances, and heating and cooling systems.
Colleges are also transitioning their campus-owned vehicles away from fossil fuels and towards technologies such as electric vehicles in order to create 100% renewable energy systems.
Certain universities have begun to concession out their utility assets to the private sector on long-term leases. This benefits universities by tapping external expertise for project development and management, particularly when there are such rapid changes in technology, and leaving the institutions to focus on their core academic mission.
A case in point: in March 2020, Meridiam and retail electricity supplier ENGIE North America hit financial close on the University of Iowa’s utility system concession. One of the key features of the 50-year contract, which involves the operation, maintenance and upgrade of the university’s utility system, will be helping the university become coal-free by 2025.
Valued at more than $1 billion, the scope of the concession includes provision of heating, cooling and electricity through a dedicated network while managing high-quality and sanitary water and storm sewer services. Meridiam and ENGIE will also work with the university to deliver services and solutions involving reduction in energy use, renewable energy generation, microgrids and energy storage.
Dartmouth College, a private Ivy League research university, plans to obtain 50 percent of its energy supply from renewable sources by 2025 and 100 percent by 2050, according to its 2017 sustainability roadmap. It seeks to improve the efficiency of its energy transmission and distribution systems by 20 percent by 2030 and reduce greenhouse emissions. It is seeking a private sector partner for the design, build, finance, operation and maintenance of on-campus energy generation systems, including steam to hot water conversion and a new biomass plant.
One of the first such procurements for an on-campus energy utility public-private partnership was led by Ohio State University. It signed an agreement in 2017 with an ENGIE North America and Axium Infrastructure consortium to manage its power, heat and cooling systems, thus making it the first US university to complete a lease-based privatisation of an on-campus energy asset. The expectation is that more universities will follow suit as sustainability migrates from choice to necessity.
Growing scope
Last year, nary a month went by without news of a new renewables or energy transition fund reaching first or final close in the Americas. These headlines signalled renewables’ increasing competitiveness against fossil fuels.
Last September, Chris Tehranian, head of US project management at global placement agent and advisory FIRSTavenue, told sister pulication Infrastructure Investor: “The biggest change we have seen has been the economic competitiveness of renewables, independent of any subsidies. The other big shift has been the scope of energy transition as an opportunity set. It is no longer just about renewables. Investors are looking at opportunities in battery storage, energy efficiency and energy conservation.”
He added that while the cleantech funds that were being raised prior to 2008 focused on biofuels and emerging technologies, “today, the focus is less about the technology and more about the build-out in infrastructure”. He pointed to “the growing themes around community-based renewable energy, demand response solutions, electric vehicles and EV charging”.
According to a 2019 report by the International Renewable Energy Agency, electricity could become the dominant energy carrier by 2050, growing from 20 percent of final consumption to almost 50 percent. Gross electricity consumption would more than double; renewables would be able to provide 86 percent of total power generation; and electrification with renewable power could start to reduce energy-related carbon emissions substantially.
The latter pairing is getting cheaper than fossil fuel-based alternatives in certain markets. IRENA claimed that for every $1 spent on the energy transition, investors could see pay-offs of between $3 and $7, or between $65 trillion and $160 trillion by 2050.
Although the renewables sector is in flux during a new post-subsidy incentive era, the US government still provides certain subsidies and production tax credits for wind projects. “Energy transition requires fewer overall subsidies, as total energy sector subsidies can be reduced by $10 trillion over the period,” IRENA said. “The focus of subsidies will need to change progressively, however – away from power and fossil fuels and into energy-efficiency technologies and solutions needed to decarbonise the industry and transport sectors.”
Notable projects include private equity firm Quinbrook’s close on Gemini, the world’s largest solar-plus-storage project, comprising 690MW of solar capacity and 380MW of storage. A 25-year power purchase agreement for the site in Nevada will result in $2 billion of forward revenue.
Ares Management’s 525MW Aviator Wind project, which is estimated to be the largest single-site wind project in the US, is another example. The project, which is under development, is 100 percent production tax credit-qualified and is contracted for the first 15 years of operations via two corporate PPAs with Facebook and McDonald’s.
Aviator Wind will be operational in 2020, helping Facebook reach its goal of reducing its greenhouse gas emissions by 75 percent and supporting 100 percent of its operations with renewable energy this year. The company was the largest corporate purchaser of renewable energy in 2019.
Ares’s senior management say climate infrastructure is particularly compelling. Partner and co-head Keith Derman told Infrastructure Investor this year: “We have invested over $2 billion into climate infrastructure, completing about a dozen transactions in the climate space over the past 24 months alone.
“We believe storage is, on the heels of competitive, unsubsidised wind and solar generation, the defining opportunity set of the energy transition – at least until vehicle electrification becomes ubiquitous and propels the energy transition into the transport sector.”
As this scope widens, renewables remain just one piece of the evolving jigsaw. McKinsey noted in a May 2019 article that other puzzle pieces include the re-engineering of infrastructure to create smart grids, the electrification of entire industries, and the introduction of e-mobility across the transport sector. Meanwhile, digitisation, the emergence of smart devices, and the smart grid are opening up possibilities for consumers to gain direct access to the market.
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