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The Pressure for Profitability: Meeting Investor Expectations in Renewable Energy

Jul 7, 2022

From our Content Contributor, Procore.

Guest Post by Cassandra Gibson

This article was originally published on Procore’s Jobsite Blog.

Times change and those changes often bring about new challenges and a shift in priorities. One industry that’s undergone significant change in recent years is renewable energy. It has experienced a rapid transformation due to new government requirements and increased shareholder emphasis on profitability and growth.

“When I started in this industry a dozen years ago, who was buying renewables? People who really believed in the environment. They were doing it for sustainability reasons. Then, seven or eight years ago, we saw a shift where there were a few markets where the returns, on solar projects, in particular, were very, very good,” says Lucie Dupas, VP of Project Execution for Powerflex.

New incentive-based government programs and growing shareholder demand are driving the recent increased investment in renewable energy projects. While this does mean more money flowing into renewable energy companies, they’ve also had to contend with issues like increased government oversight, and pressure to meet investors’ expectations and deliver returns.

By applying some best practices around project standardization, renewable energy companies are finding success in meeting their scaling ambitions as well as their shareholders’ profitability expectations.

The Growing Market Opportunity in Renewables

In recent years, environmental concerns have helped renewable energy owners generate significant returns, particularly with investments from power companies and utilities. This is due in part to the increasing interest investors have shown in Environmental, Social, and Governance (ESG) initiatives. ESG initiatives give companies a direct profit motive to step up their efforts in renewables.

Both federal and state governments provide ESG tax credits, which encourage power companies and utilities to invest more in renewables. This in turn increases pressure on renewables to meet financial targets for their investors. Shareholders are aware the potential returns for these projects can be made even greater because of ESG tax credits, so they’re more likely to want to know a company’s ESG plans to ensure no ROI is left on the table.

“People are really motivated by sustainability, again. Either because their shareholders are asking them what their ESG plan is or because they care personally, but you’re now seeing a blend of both, so that’s been driving a lot of the growth. At the same time, you’re now seeing these massive companies that are investing in renewable energy,” says Dupas.

With greater emphasis on sustainability and climate management at the government level, incentive programs and new requirements are driving more business for renewable energy companies, while enabling energy investors to live up to their renewable portfolio goals.

Challenges Facing Renewable Energy Companies

To meet investor expectations, companies in the renewables space are facing increased pressure to scale, which means taking on more renewable energy projects. Scaling a portfolio of such complex projects is difficult even under the best of circumstances. Add in the construction industry’s ongoing labor and supply chain constraints, and the result is a significant hurdle for companies to hit their scaling goals.

The complexity of these projects creates challenges in managing all of the information and data coming from various sources. This introduces project risk and makes recording accurate data and reporting more difficult. Meanwhile, a poorly managed data environment can result in wasted time through endless back-and-forth communications and poor visibility into portfolio and project health.

Profit margins in complex construction are already thin, so any mistakes, delays, or inefficiencies that result from disorganization around data management can eat directly into a company’s bottom line.

“We [in renewable energy] always think that we’re like the cool kids on the block, but it’s construction, it’s hard. You have to be really organized to be successful. There are a lot of smaller shops that are trying to do a good job, but they are either not organized, or they don’t have enough construction experience. In order to be successful, you really have to focus on your processes,” explains Dupas.

Technology Enables Team-Wide Collaboration and Real-Time Decisions

Technology plays a significant role in helping renewable energy companies shield profit margins from erosion, ensure they’re on the right track toward achieving their growth goals, and meet investor expectations.

Through the careful application of technological solutions, companies can better streamline and replicate projects, ensuring the methods and processes that worked on previous projects can be seamlessly reproduced in future jobs. Technology also gives owners the information necessary to see how their entire portfolio is performing with ease. The informational edge technology provides is often a game-changer for overcoming scalability challenges.

Technology-driven solutions also help with team-wide collaboration and allow owners to make more informed, real-time decisions with always-accurate data.

“We’re constantly being asked to make decisions on every project every single day. Some are made at an engineer level, some at a project manager level, and some go up the chain. The more information we have at our fingertips, the more informed we are and the better decisions we can make,” says Sirous Thampi, VP of Innovation and Program Management with REV LNG, a distributor and transportation company developing sources of renewable natural gas.

Having access to real-time data and insights enables owners to make well-informed decisions quickly and sets them on the best trajectory to achieve their company goals.

“We have the tools to make decisions in real-time. We have at our fingertips a tool that provides us with insights that we didn’t have before. So, when it comes to making decisions about the future of our projects or how we want to grow our projects as a company, technology is enabling that to happen at a faster rate with more clarity, accountability, and transparency,” explains Thampi.

With renewable energy companies growing more beholden to stakeholder expectations, technology helps improve transparency around budgets and profitability, making it easier to report accurate information about portfolio performance and individual project health, all the while streamlining the complexities of their rapidly scaling renewable energy portfolio.

When scaling challenges threaten to disrupt a company’s profitability, technology provides a range of useful solutions that help renewable energy owners mitigate risk. 

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