New Insights Into Why Power Producers Are Facing Unprofitable Growth

Declining power prices and decreasing off-take rates pose grave threats to power producer’s ability to grow profitably.

Press Release updated: Oct 24, 2017 05:00 PDT

Recent studies and interviews with hundreds of energy executives from across the global energy spectrum by Mercatus reveal that power producers are facing unprofitable growth despite increasing business opportunities in the renewable energy sector. While demand for renewables continues to surge; thanks to dropping technology prices, power producers today are struggling financially.

Due to the rapidly decreasing prices of solar and wind power, energy procurers today are becoming less inclined to enter into long-term power purchase agreements (PPAs). According to data from Mercatus Investment Lifecycle Management (ILM) platform, off-take rates are in decline globally. While this has proved beneficial for energy buyers, it is adversely affecting the power producer’s operating model, which is traditionally based on the assumption of long-term fixed-price contracts. As a result, their profitability is now trending downward for independent power producers (IPPs) in North America and Europe.

According to Haresh Patel, CEO of Mercatus, “The traditional Power Purchase Agreement and current Independent Power Producer business model are both under attack.”

In this market, efficiency is key to profitable growth. To compete effectively, a lean cost structure and control over operating expenses is essential. Unless power producers focus on improving their productivity, they are at significant financial risk.

Haresh Patel, CEO, Mercatus Inc.

Mercatus also finds that companies that have expanded into distributed generation are suffering from flat-lined and even decreased employee productivity. Companies with distributed generation projects now require roughly seven times more full-time employees to achieve the same megawatt output than conventional energy sources. As a result, operating expenses are increasing within energy companies. This is severely affecting their profitability.

“In this market, efficiency is key to profitable growth. To compete effectively, a lean cost structure and control over operating expenses is essential,” adds Haresh Patel. “Unless power producers focus on improving their productivity, they are at significant financial risk.”

For more information on this research and findings, visit http://gomercatus.com/blog/power-producers-unprofitable-growth or contact Madeline Milani ([email protected]).

About Mercatus

Mercatus is a cloud-based software company that serves the unique needs of renewable energy developers and asset owners. Mercatus Energy Investment Lifecycle Management (ILM) is the only integrated software platform that automates the full asset investment life cycle, from origination through end-of-life, enabling energy companies to grow their portfolio faster while lowering their risk profile. Mercatus’ customers are some of the largest energy companies that collectively leverage the Energy ILM platform to manage over 110 GW of projects, across 75 countries, using eight advanced energy technologies. Mercatus is headquartered in Silicon Valley and has offices in Europe and India.

Source: Mercatus Inc.

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About the Author: Carrie Brunner

Carrie Brunner grew up in a small town in northern New Brunswick. She studied chemistry in college, graduated, and married her husband one month later. They were then blessed with two baby boys within the first four years of marriage. Having babies gave their family a desire to return to the old paths – to nourish their family with traditional, homegrown foods; rid their home of toxic chemicals and petroleum products; and give their boys a chance to know a simple, sustainable way of life. They are currently building a homestead from scratch on two little acres in central Texas. There’s a lot to be done to become somewhat self-sufficient, but they are debt-free and get to spend their days living this simple, good life together with their five young children. Carrie writes mostly on provincial stories.
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