In 2021, the new U.S. presidential administration under Joe Biden could usher in an accelerated energy transition largely led by the power and utilities industry, consultant Deloitte said Dec. 14.
"Biden's campaign platform called for a national net-zero greenhouse gas emissions target by 2050 and a $2 trillion investment to help equitably achieve this target," with the power and utilities industry expected to lead this transition, Deloitte said in its 2021 power, utilities and renewable energy industry outlooks.
While a Republican-led Senate may narrow the scope and/or extend timelines around these plans, "agreement on an infrastructural stimulus could serve as a vehicle to advance the energy transition, as could executive authority over emissions," the analysts said.
Many utilities, cities and states and their business customers have made plans to fully decarbonize over the next three decades and have continued such plans despite "pandemic-driven shocks to the electricity load," the report said.
S&P Global Platts Analytics has observed that during 2020, U.S. residential power demand has compensated for drops in commercial and industrial demand, with the percent of total residential electricity sales estimated at 41% in 2020 compared to 38% in 2019.
Power industry stakeholders grow
The Deloitte report found that more oil and gas companies have been investing in the power sector, either to run drilling operations directly with renewable energy or through subsidiary investments in technologies such as offshore wind.
"In fact, the companies that had already invested substantially in new business models, such as renewable energy, found that even as oil price volatility increased in 2020, the comparatively stable returns on renewable investments were a welcome addition," Deloitte said.
Additionally, as the U.S. offshore wind industry "takes off next year," U.S. oil majors could be positioned to "transpose their offshore drilling expertise to the nascent" industry. The U.S. currently has 30 MW of commercially operating offshore wind capacity, but East Coast states have been supporting the technology through state-led solicitations and currently have almost 40 GW of mandated offshore wind capacity on the books by 2050.
For example, the New Jersey Board of Public Utilities received bids Dec. 10 from Atlantic Shores Offshore Wind — a 50/50 partnership between Royal Dutch Shell PLC subsidiary Shell New Energies US LLC and EDF Group subsidiary EDF Renewables North America — and Denmark's Ørsted A/S for between 1.2 GW and 2.4 GW of offshore wind power capacity.
The focus on decarbonization to fight climate change, along with price declines for renewable energy and greater investment opportunity as the renewable power industry grows could bring utilities and more traditional oil companies into partnership and greater competition in coming years, Deloitte noted.
These emerging competitive and cooperative dynamics could bring greater merger and acquisition activity in 2021, according to Deloitte.
The renewables segment continues to "capture a significant share of deal activity in the power and utilities industry," with 144 of the 174 M&A deals announced through early December involving renewable energy assets or companies, Deloitte said in its market outlook, adding that federal support, mandates and stimulus could provide additional M&A drivers in 2021.
Jared Anderson is a reporter for S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.