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Enbridge CEO Anticipates Short-Term Selling Pressure on Renewable-Energy Stocks

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Enbridge CEO Foresees Limited Short-Term Slump for Renewable-Energy Stocks

Enbridge Inc. Chief Executive Officer Greg Ebel believes that the recent decline in renewable-energy stocks will primarily impact companies selling green energy in wholesale markets, rather than those with long-term contracts. Enbridge, a Calgary-based company operating various energy assets, has increased its ownership in the Hohe See and Albatros offshore wind farms in Germany by 24% for approximately 625 million euros ($670 million). Additionally, Enbridge has agreed to acquire seven operating landfill-based renewable gas assets in Texas and Arkansas for $1.2 billion.

Differentiating Factors in Renewable-Energy Stocks

Ebel highlights that not all renewable-energy companies are the same, and investors are starting to recognize this distinction. He emphasizes the importance of long-term contracts with reliable counterparties, such as large utilities or major industrials, as a favorable factor for participation in the renewable-energy sector.

Challenges in the Offshore Wind Industry

The offshore wind industry is facing challenges, as demonstrated by Orsted A/S dropping two US wind projects and recording impairments. Rising costs and interest rates have led to project delays and companies reconsidering their plans or seeking to renegotiate deals. Long-term contracts for power delivery at specific prices have become unviable due to escalating development costs. Enbridge's increased stake in the German wind farms comes with long-term, government-backed power purchase agreements. Similarly, the renewable gas assets acquired by Enbridge have long-term, full-volume offtake deals with Shell Plc and BP Plc. In its third-quarter earnings report, Enbridge reported adjusted earnings of 62 Canadian cents per share, surpassing analysts' average estimate of 58 cents. Enbridge's shares saw a slight increase of 0.3% to C$46.20 in Toronto. In conclusion, Enbridge's CEO expects the slump in renewable-energy stocks to primarily affect wholesale market sellers, while companies with long-term contracts may fare better. The challenges faced by the offshore wind industry highlight the importance of reliable contracts and cost management in the renewable-energy sector.

Implications of Renewable-Energy Stock Slump for New Businesses

The recent slump in renewable-energy stocks, as noted by Enbridge Inc. CEO Greg Ebel, could have significant implications for new businesses in the sector. Ebel predicts that the impact will be primarily felt by companies selling green energy in wholesale markets, rather than those with long-term contracts.

Importance of Long-Term Contracts

New businesses in the renewable-energy sector should take note of Ebel's emphasis on the importance of securing long-term contracts with reliable counterparties. This strategy could provide a level of protection against market volatility and ensure a steady revenue stream.

Navigating Challenges in the Offshore Wind Industry

The offshore wind industry is currently facing significant challenges, including rising costs and interest rates leading to project delays. New businesses in this sector will need to carefully manage their development costs and contract negotiations to remain viable.
Learning from Enbridge's Strategy
Enbridge's strategy of securing long-term, government-backed power purchase agreements and full-volume offtake deals could serve as a valuable example for new businesses. These strategies could help mitigate risk and ensure business stability. In conclusion, the current slump in renewable-energy stocks presents both challenges and opportunities for new businesses in the sector. By securing long-term contracts and managing costs effectively, these businesses can navigate market volatility and position themselves for success.
Story First Published at: https://financialpost.com/pmn/business-pmn/enbridge-ceo-sees-renewable-energy-stock-slump-limited-to-short-term-sellers
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