The challenge

Designing a renewable portfolio that leverages competitive advantage

Our client is a diversified energy business that owns, operates and manages gas transmission pipelines alongside a growing portfolio of renewable generation and storage assets.

The energy transition in Australia has presented a range of choices for our client to scale its renewable portfolio in terms of technology, geography, offtake, and stage of entry. These choices will determine the risks and returns of the future portfolio and our client’s ability to leverage competitive advantage.

Our client was seeking an assessment of the market opportunity for renewables and storage, an assessment of its competitive advantage and an analysis of several portfolio options to determine the pathway that will deliver attractive risk adjusted returns.

Our solution

Rennie identified market gaps, our client’s internal capability, and a range of portfolio pathways

The first stage of the project was to conduct an environment scan that provided a holistic outlook for renewables in Australia. The scan examined energy policies at a Federal and State level, demand and supply across several scenarios, level of corporate commitments to emission reduction, the pipeline for renewable projects, competitor landscape, technology costs, and market and contracted power prices. This provided a clear outline of the opportunities and risks for investment.

During the second stage, Rennie assessed our client’s capabilities across its gas and renewables business. This included identifying skills, IP, and knowledge that could be shared between the businesses, but also how the overall business risk (and returns) would change as renewables grew to be a larger part of the portfolio. The insights led to the identification of competitive advantages that our client has when compared to pure play renewable platforms in the market. The third stage brought together the insights from the external environment and internal capability assessment to develop portfolio options with different mixes of technology mix, location, offtake structures, and stages of entry. Option thematics across ‘closing market gaps’ were compared to ‘competitive advantage’ to understand how portfolio risks and returns changed for different portfolio strategies.

Our impact

Market, company and portfolio analysis informed a growth strategy that will deliver attractive risk-adjusted returns

The final report and overall engagement played a key role in communicating to senior stakeholders (including investors) the merits of pursuing growth in the renewables business and provided a strong evidence base for each of the choices that underpin the future portfolio. This provided stakeholders the confidence on ‘why’ growth was value accretive and ‘how’ it would be delivered.

Key insights/Lessons learned

• There are many renewable platforms positioning to capture growth in renewables, so it is important for firms to undertake a robust assessment of their in-house capabilities to determine a portfolio strategy that leverages competitive advantage to develop a unique position in the market and attractive proposition for investors
• Portfolio choices on technology, geography, stage of entry and offtake can have a material impact on risk, returns and timing of cash flows. Fine turning and modelling these parameters across a wide range of scenarios is important to selecting a future target portfolio that meets investor expectations but carries an acceptable level of risk.