The Stephens Investment Banking Energy Transition White… | Stephens

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The Stephens Investment Banking Energy Transition White Paper

Feb 14, 2022

Len Vermillion, Editorial Director for Oil & Gas Investor, recently hosted the Stephens Investment Banking Energy Transition Webinar. This is the latest entry in a series of thought leadership webinars by Stephens, which spotlight major developments in energy markets and look ahead to trends that may shape the sector in the months and years to come.

This entry explored how innovative companies in the space are accessing capital to pursue alternative energy projects while maintaining a focus on ESG initiatives. Vermillion spoke with:

  • Maximo Blandon, Managing Director in Energy & Clean Energy Transition Investment Banking at Stephens. Stephens has been active in the energy sector for more than 50 years.
  • Chris Kendall, President and CEO at Denbury. Denbury has recently expanded its strategy from a focus on traditional carbon dioxide-based enhanced oil recovery operations into carbon capture and storage.
  • Chris Leary, an Investment Partner at Orion Infrastructure Capital. Orion Infrastructure Capital’s solutions factor in the environmental impact of companies.
  • Thomas Spangler, Executive Chairman, and Donal Buckley, CEO, both at CleanBay Renewables. CleanBay’s portfolio includes poultry-based bio-conversion facilities.

The panel discussed how the energy mix and its related deal flow is changing their businesses, how ESG is moving from a cost center to a value driver for many companies, as well as how the demands of investors and limited partners are evolving as a result of energy transition. Here are some highlights from the webinar.


A confluence of events in recent years has rapidly accelerated the adoption of renewable and clean energy initiatives by a wide assortment of companies in the space, from traditional oil & gas operators and alternative energy upstarts to institutional investors and private capital providers. These factors include public and investor support for environmental issues; government mandates at the federal, state, and municipal levels; corporations realizing the value-add to businesses [and broader environmental impact] for lower carbon emissions; and COVID-19 intensifying global concern for health and safety.

Activity has begun ramping up to varying extents for energy efficiency among traditional energy assets, electrification of vehicles and green hydrogen pipelines, distributed electricity generation, carbon capture and sequestration, nitrous oxide abatement, biofuels, as well as plastic waste recovery. The popularity of the space is evidenced by the fact that the world’s largest carmaker by market capitalization is hyper-focused on EVs, and that one of the world’s largest oil & gas companies has pledged to go carbon neutral by 2050.[1]

The $1.2 trillion U.S. infrastructure bill, which passed in November, will provide significant public funds to support the development of renewable technologies, including hydrogen.[2] If the federal Build Back Better bill also passes this year, it may allocate $555 billion for climate provisions, of which $320 billion would go to clean energy spending and tax credits.[3] If enacted as designed, these spending plans are likely to spur massive public- and private-sector energy transition projects throughout the next decade.

Yet because the energy transition is a decades-long process, crude oil and natural gas will stay in high demand over the medium term. This has been clearly on display with the price of West Texas Intermediate (WTI) surpassing $85 per barrel in October, 2021, and then crossing $86 per barrel in January to reach its highest price since 2014,[4] amid supply chain disruptions as well as geopolitical tensions on the Russia-Ukraine border and in the Middle East.


For the first time, renewable power projects overtook oil and gas drilling in 2021 as the largest source of energy spending.[5] Stephens Investment Banking anticipates approximately $16 trillion of investment through 2030 in that space alone. As oil majors embrace the circular economy, fossil fuel utilization continues to drop – and some feel that fossil fuel utilization may fall from approximately 80% of total energy consumption today to 50% by 2050, according to Mr. Blandon.

He anticipates that oil usage is on track to remain flat until 2025, but natural gas – which is seen as a cleaner alternative – is poised to rise in usage through 2050. Coal usage might fall the most among fossil fuels, potentially down approximately 62% by 2050, according to Mr. Blandon. Net-zero carbon emissions have become a long-term goal at many companies. In response, certain sectors that became highly sought-after alternative energy infrastructure investments, such as wind and solar projects, are facing significant competition from other investment opportunities.

For example, one emerging type of project is to provide blue ammonia, in which the desired product is generated while resulting carbon dioxide waste is put underground in an environmentally safe manner. Another initiative is repurposing livestock waste, through mechanical and chemical processes, into large quantities of renewable natural gas and organic fertilizer. Meanwhile several common challenges must still be overcome across the energy transition space.

High on the list is reaching consensus on what qualifies as viable sustainability metrics and Environmental, Social, and Governance (ESG) goals, for both companies active in energy transition production and operation as well as for capital providers to those businesses. Monetizing clean and renewable energy sources, profitably and at scale, also remains very much a work in progress. Then there is keeping up with the rapidly evolving demands of the general public, government regulators, and investors.


A compelling sign that clean and renewable energy has gone mainstream is the ability of companies in the space to access traditional sources of capital for their growth strategies. Tax equity, preferred equity, construction debt, and permanent debt are likely to be the main financing structures during the next few years. Stephens Investment Banking anticipates that private funds will account for approximately 80% of financings in this sector this year, with debt representing approximately 60% of that activity.

Corporates, especially large technology firms, are starting to directly own or participate in assets such as energy storage and sustainable aviation fuel, where they are investing substantial amounts of capital. Some businesses transitioning from traditional oil & gas processes to cleaner alternatives are seeking to persuade capital providers that the company’s returns ought to be evaluated on an annual or multi-year basis instead of predominantly on a quarterly basis, as well as demonstrate that their new cash flow streams can last longer without depleting than those derived from traditional oil & gas assets.

There also is tremendous buy-side interest. This has increased competition across the financing landscape and brought new entrants to ESG and sustainable infrastructure investing, to the benefit of middle-market growth stage companies. In the near-term, players including SPACs are allowing venture growth-stage companies to leap frog their typical progression in the private markets before going public. However, since some of the new private equity entrants are relatively novice investors in the space, they may need time to accept that double-digit returns will be difficult to achieve in proven assets such as wind and solar.

Conversely, capital providers that take a semi-permanent partnership approach with energy transition innovators may be better placed to participate in that kind of growth. These entrants may focus on getting a select few highly innovative projects or companies at the forefront of their field to the next stage of development – such as full commercialization and acceptance by the market – while providing access at lower cost of capital than competitors.


Some of the largest investors in the energy sector are starting to prioritize sustainability and ESG goals. Pension funds and insurers are pledging to become carbon neutral in their investments. Banks and institutional lenders have set targets to meaningfully reduce their “financed emissions.” Tradeable futures and options markets also have expanded into clean and renewable energy assets. A significant catalyst for heightened investor demand has been a wide array of enhanced government incentives that go beyond mere transportation fuel subsidies.

Several eastern U.S. states cooperate in the market-based cap-and-invest Regional Greenhouse Gas Initiative (RGGI).[6] For the past several years, California has advanced the credits and deficits aspect of its Low Carbon Fuel Standard (LCFS) program[7] and Oregon’s Clean Fuel Program has traded carbon credits.[8] Canada is in the process of implementing a nationwide program.[9] And the European Union is expanding its carbon credits market, for which prices nearly tripled between January 2021 and January 2022.[10]

Perhaps not coincidentally, sustainability and ESG-focused investing often has evolved from a “nice to have” strategy into a “must have” strategy, including for many private equity firms active in the energy sector. As more limited partners start to insist on avoiding traditional energy assets, more funds are likely to refrain from businesses associated with hydrocarbons, which in turn could exacerbate capital dislocations for oil & gas companies.

As last fall’s COP26 UN Climate Change Conference stated on its website, “Banks, insurers, investors and other financial firms need to commit to ensuring their investments and lending is aligned with net zero.”[11] Of course, disciplined investors with limited time horizons still will seek the best possible returns, and will compare those in the clean and renewables space to returns available for traditional energy assets.

[1] BP sets ambition for net zero by 2050, fundamentally changing organisation to deliver | News and insights | Home




[5] 2021: The Year Of Renewable Energy |




[9] Clean Fuel Standard -

[10] For Europe’s Hot Carbon Market, Politics Is the Ceiling - WSJ



This article has been prepared solely for informative purposes as of its stated date and is not a solicitation, a recommendation or an offer, to buy or sell any security. It does not purport to be a complete description of the assets, properties, securities, markets or developments referred to in the article. Information in the article was obtained from sources considered to be reliable, but has not been independently verified or confirmed. The views expressed herein are those of the individual speakers and do not necessarily reflect the views of Stephens. Any expressions of opinion speak only as of the date of preparation of the presentation. No subsequent publication or distribution of this article shall mean or imply that any such information or opinion remains current at any time after such date of preparation. Nothing in this article should be viewed as accounting, tax, regulatory or legal advice.

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About the Expert

Maximo Blandon

Managing Director, Head of Clean Technology & Infrastructure, Investment Banking

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