Deploying Capital to Decarbonise Household Electrification

Electricity production from renewable sources is surging. In fact, it has more than doubled globally in the past 15 years, according to World Bank data.

But there remains significant work to be done. If 40% of global electricity now comes from renewable sources, for example, the remaining 60% from fossil fuels needs to drop to 26% by 2030 to meet the Net Zero Emissions by 2050 Scenario. This transition requires over $150trn in investment, and speedy advances in consumer behaviour, policy and technological innovation, to be achieved.

Europe is still not on track to meet the EU’s climate objectives, as buildings – mostly houses as well as schools, hospitals and offices – still account for 40% of the total energy consumption and 36% of CO2 emissions. Further incentive to reduce emissions comes from eye wateringly high electricity costs, as much of what we use is still gas generated. Supply chain issues have continued the global surge on wholesale energy prices. In the UK, they were more than twice as high in 2022 than 2021.

Alex Stein, Managing Director and EMEA co-head of Nomura Greentech, asserts that an integrated solution to decarbonise households, where one provider supplies, installs and manages solar panels, batteries and EV charging in the home, is an attractive investment for both consumers and investors. Nomura, which joined the list of global banks in the UN’s Net-Zero Banking Alliance (NZBA) in 2021, aims to facilitate capital in this area.

Taking back control

“The incentive to decouple oneself from energy market volatility by installing solar on your roof and a battery in your home is becoming increasingly economically attractive,” says Stein. “The imperative to manage electricity costs is becoming even more critical through the transition from gas combustion heating to an electric heat pump and through the transition from a gas consuming car to an Electric Vehicle.  Integrated solar, storage and charging, if intelligently controlled through software not only reduce costs but allows consumers to become proactive participants in the energy system and maximize savings.”

But the challenge for customers is laboriously selecting and installing several disaggregated components into their home, which is expensive and time consuming, Stein continues.

“A combination of hardware, software, service and funding needs to come together as an integrated solution.  Solving this complexity creates value for customers and represents an opportunity to those companies able to deliver.”

A simpler customer journey

Removing complexity should be a key metric for investment, benefitting the end user, the planet and the market. “An integrated offering is extremely valuable,” says Stein. “The customer doesn't want to have to go online and figure out what battery, charger or roof installation they want, then find an installer.”

With EVs becoming more cost effective, any integrated solution needs to put customer needs first.  “As these technologies become more mainstream and the people become more savvy consumers of energy, they will come to expect things like special EV tariffs that reward them for charging when energy is cheapest,” Stein explains.

While a growing number of incentives exist, driven in large part by evolving regulatory standards, can the market deliver on such a surge in demand in a truly sustainable way?

“There are no key blockers from a technology standpoint,” says Stein. “One of the most challenging bottlenecks is sufficient qualified installation engineers, but some companies solve this by bringing that installation capacity in-house.”

Supply chains are mending

The pandemic and inflation increasing the cost of raw materials has impacted supply chains globally, but supply is slowly catching up with demand and some areas are improving, according to Stein.  However, there is still an over-reliance on specific markets and regions – a potential issue given some ongoing trade tensions.

Solar power installations doubled year-on-year in 2022, according to MCS, the UK standards organisation in charge of solar installations. In the US, the Inflation Reduction Act (IRA) of 2022 directs around $400 billion of tax credits to clean energy, aiming to significantly lower the US’ carbon emissions in the next ten years, $216 billion of which is available to corporations for sustainable investment. For consumer incentive, $43 billion in IRA tax credits will be allocated to lower emissions by making EVs, energy-efficient appliances, rooftop solar panels, geothermal heating, and home batteries more affordable.

In Europe, the Net-Zero Industry Act sets out a clear framework to reduce the EU's reliance on highly concentrated imports by creating the necessary conditions for crucial sectors such as solar cells.

Investment banks like Nomura are reading the space to support leading innovators that want to change the world’s energy and infrastructure systems. “We are trying to understand their capital requirements across the different elements of their business so we can refine our advisory and capital deployment capabilities to best support their needs,” says Stein.

Nomura is also engaging with incumbents such as large energy and natural resources companies, to understand their strategic priorities around residential decarbonisation alongside the needs of innovators. “We aim to help create the best alignment between innovators, incumbents and capital providers,” asserts Stein.

In 2022, Nomura Greentech acted as the exclusive financial advisor to leading green energy group Enel in signing a deal to sell 50% of Gridspertise to CVC. CVC paid €300 million euros, equivalent to an enterprise value of €625 million euros, that could reach up to €1,000 million euros through potential deferred payments. Gridspertise aims to accelerate the digital transformation of power grids through advanced network technologies and solutions. Through this partnership, CVC will support the growth of Gridspertise, while contributing to the larger mission of more resilience in low emission energy supply and helping customers to easily implement energy efficiency measures on their premises.

In the year prior, Nomura also oversaw photovoltaic solar energy generation system provider SunPower’s acquisition of Blue Raven Solar, a rapidly expanding residential solar company founded in 2014, for a cash consideration of up to $165 million. The acquisition helps SunPower to expand its reach and accelerate its responsiveness to facilitate renewable energy, enabling households to save money, while also providing resilience against increasing grid failures, while contributing to reduce the impacts of climate change.

A differentiated value prop

“The residential decarbonization space is different from investing in a solar project or a wind farm,” says Stein. “Investors are seeking to back companies with differentiated value propositions, either in the go-to-market strategy, technology, or ease of customer journey, which will allow a company to gain market share and grow customers and assets under management, and optimise value from those customers.”

This article was first published by Capital Monitor.

Contributors

Alex Stein

Managing Director and EMEA Co-Head, Nomura Greentech