The volatile period that energy markets are currently going through reveals the impossibility of establishing a fair long-term investment rate of return (IRR), it is impossible to have a price reference, and the way forward for stability is hedging, said Filimon Antonopoulos, Managing Director Tallon Commodities, at the Energy Strategy Summit 2022, an event organized by Energynomics.
Stability and predictability are very important for any type of investor, for any investment fund, and any project needs an estimated return (IRR), a benchmark. Nobody is going to pay money, invest money, where there is no budgeted IRR. The problem is, in the environment we’re in over the last 2 years, with oil hitting record negative prices two years ago in the US, and now jumping over 120 dollars, with gas rising in three stages above all expectations before the war, and then all of a sudden we hear about IRR. Well IRR at what price? The famous PPAs are concluded for an estimated 5-10-15 year profit. When gas was at a low price, there was no competitive PPA in the market – it was only when gas went up that competitive PPAs could be concluded. “But when energy prices move 1,000% in three months none of this talk is relevant anymore, unless you can set an IRR benchmark for a fixed period of time,” he said.
“No one can predict a financial crisis, because it’s a pretty delicate issue, and when you have a border war no one can predict what the gas price will be in the winter. There’s talk of a 500% difference between last winter’s gas price and next winter’s, and every project has an IRR, but in practice, anyone who estimates an IRR will be wrong,” he added.
Energy suppliers went bankrupt, and everyone looked for funding to finance their contracts, and end consumers were hit hard.
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“What we are seeing now, also in conversations with project developers, is the need to fix prices and budgets for raw materials and energy if we want to develop any project – infrastructure, pipelines, networks, sustainable financing. If we want to have stability over the next three years, and not to collapse in a month, the way forward in this extremely volatile period is hedging,” he added.
Energy Strategy Summit 2022 was organized by Energynomics with the support of its partners: ABB, BCR, CE Oltenia, Chimcomplex, Eaton, Electrica Furnizare, Electroalfa, EnergoBit, Enevo Group, European Energy, Eximbank, EY, Franklin Templeton, Horváth, ING, Hidroelectrica, Marsh, MET Energy România, Nuclearelectrica, BCR Pensii, Photomate, Powertis, Renomia Gallagher, Schneider Electric, Transelectrica, Volt, wpd.
