POWER July 2021 - 33

MID-YEAR INDUSTRY FORECAST
2020 and found the loan spreads for onshore
wind projects fell by an average of
12%, while offshore wind loan spreads
decreased 24%. They said decreases
have accelerated since 2015 as the deployment
of renewables has increased,
with solar photovoltaic, onshore wind,
and offshore wind financing costs falling
by 20%, 15%, and 33%, respectively
(comparing 2010-2014 with 2015-2020).
In contrast to renewables, comparing
2007-2010 with 2017-2020, coal power
stations have seen their loan spreads
increase 38%. This trend holds when
comparing 2000-2010 with 2011-2020,
with loan spread increasing 56%. Loan
spreads for gas-fired power stations
have also been increasing, but by a
smaller margin than coal recently. Gas
project loan spreads rose by 68% when
comparing 2000-2010 to 2011-2020,
but increased only 7% the past decade
(comparing 2007-2010 with 2017-2020).
Bright Future for Consulting and
Engineering Firms
Another area where Clairvest sees promise
is in consulting and engineering firms,
particularly those that have a strong practice
focused on serving the changing
needs of the Power & Energy market.
" Given the significant growth in spending,
innovation, and construction required
to achieve clean energy targets, consulting
and engineering firms with the right
expertise and market focus will enjoy
considerable growth and success. Services
from planning, design, permitting,
testing, and overseeing construction are
in high demand. Along these lines, our
research suggests that consulting and
engineering firms focused on the Power
& Energy end-markets are growing faster
and with higher margins than firms which
are not, " Michael Andrisani, senior associate
with Clairvest, told POWER.
" Given the significant growth and
change occurring in the Power & Energy
industry, consulting and engineering
firms with the right capabilities to cater
to this end-market are set to grow and
achieve new heights, " Castellarin added.
Others seem to agree that consulting
and engineering firms offer great potential
for growth. For example, Montreal,
Canada-based WSP, one of the world's
leading professional services firms with
about 54,000 employees, recently acquired
Golder, a private employee-owned
engineering and consulting firm based
in Mississauga, Ontario. According to a
press release, the deal was intended to
capitalize on ESG trends.
July 2021 | POWER
" Private equity firms are also focused
on the consulting and engineering industry, "
said Andrisani. " Given that the industry
is fragmented, private equity firms can
follow an inorganic growth strategy by
pursuing acquisitions to enter new markets
and add new capabilities. Additionally,
private equity investors believe they
bring complementary skills to consulting
and engineering firms and can improve
financial performance by relentlessly focusing
on the most important operational
levers and investing in technologies. "
Clairvest's strategy is to partner with
heavily invested management teams, often
remaining a minority investor. The approach
fits well with the consulting and
engineering sector, particularly when succession
issues are a concern. " There is an
increasing cadre of baby boomer partners
or employee-owners looking to retire. The
younger and rising stars in many consulting
and engineering firms do not have the
financial capacity to buy out the selling
partners. As a result, a private equity firm
like Clairvest can be an excellent equity
partner to assist with such an ownership
transition while also providing capital for
growth, " Castellarin explained.
The Growth of VPPs
Demand response (DR) programs allow
utilities to curtail customer usage during
periods of peak electricity demand. For
example, some direct load control programs
give power companies the ability
to cycle air conditioners and water heaters
on and off for limited durations when
advantageous for system reliability in
exchange for a financial incentive given
to the customer. The programs can help
reduce the need for new power generating
units, as well as investments in grid
upgrades, at least for a while.
Virtual power plants (VPPs) offer a
new take on DR. A VPP is a network
of decentralized power assets, such as
rooftop solar panels, wind turbines, and
small on-site diesel or gas generating
units, as well as flexible power consumers
and storage systems. The interconnected
units are dispatched through a
central VPP control system but remain
independent in their operation and ownership.
As technology has evolved, and
more behind-the-meter generation and
energy storage has been added to the
grid, aggregators have pooled some of
these resources into VPPs.
The objective of a VPP is to relieve the
load on the grid by smartly distributing the
power generated by the individual units
during periods of peak load. Additionally,
www.powermag.com
the combined power generation and power
consumption of the networked units in
the VPP can trade on energy exchanges.
" A virtual power plant is like a demand
response program, but it's all automated.
It's remotely dispatched and it responds
to actual real-time market signals, " Peter
Asmus, research director with Guidehouse
Insights, a global consulting services
provider, told POWER.
Asmus helped author a report on the
residential DR and VPP markets that
Guidehouse Insights released in late
May. The report predicts the role of flexible
capacity, such as VPPs, will grow
from less than $1 billion in 2021 to more
than $6.5 billion by 2030, a compounded
annual growth rate of 23.3%. The firm
said " customer engagement trends, an
evolving market ecosystem, and supportive
regulatory environment " are the
main drivers of VPP growth.
Asmus said VPPs typically offer the
most value in deregulated markets. He
noted the PJM Interconnection has historically
been the best market for DR and
VPP participants, but he also said the
New York and New England Independent
System Operators (ISOs) are among the
market leaders in the VPP space. " The
VPP is more about bringing value up to
the wholesale markets, " Asmus said.
" Europe is the main other market focused
on residential demand response,
but they started a lot later than the U.S.,
mainly because they're so efficient already, "
he said. Asmus suggested the
success of DR programs hinges on inefficiency,
that is, there must be excess
load that can be cut in order for operators
to effectively harvest the inefficiency
from the system. " In Europe, ironically
enough, they've been so efficient over
the years, so they've come late to this
market. But in Europe, it's more focused
on renewable integration, " Asmus said.
" Our forecasts show that beginning
this year more distributed energy resources
are coming online globally than centralized
generation, and that gap grows over
time, " said Asmus. " The wave of the future
is depending more on these smaller,
often non-utility-owned assets, and these
programs-VPPs-allow both those asset
owners to get more value and the utility
to also get value from those assets. So
again, it's this win-win scenario. And we
see these things as absolutely being necessary
in the future, because more and
more of our power will be coming from
these smaller resources. " ■
-Aaron Larson is POWER's
executive editor.
33
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POWER July 2021

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