In recent years, the Latin American renewables market has undergone a dramatic transformation, with political risk factors, investment trends, technological advances, and external shocks affecting the sector in myriad ways. As the Covid-19 pandemic brings historic disruption to the world’s economies, we lay out the trends shaping the Latin American market and our outlook for the sector going forward.

Power sector demonstrates resilience amid infrastructure slowdown

As the world continues to count the economic and human cost of Covid-19, its impact on infrastructure projects has begun to emerge. The outbreak has caused factory closures, halts in production, and delayed shipments. The United Nations Conference on Trade and Development (UNCTAD) estimates a potential US$50bn decrease in exports across global value chains in the first quarter of this year alone as a direct result[1].

On the demand side, as government funding and bureaucratic capacity are diverted towards combating the outbreak of the virus, ongoing infrastructure projects have been halted and project pipelines canceled. With movement restrictions and shelter-in-place regulations still in force in several geographies, public procurement has ceased while operational restrictions and economic certainty are holding back private sector investment in many infrastructure projects.

Not so for the power sector. With much economic activity heavily dependent on the use of electricity, maintaining, and even expanding energy access has become a priority. Because of this focus on electricity generation capability, governments around the region have ruled power projects as essential infrastructure development, even during lockdowns.

Renewables demand holds up even as electricity usage plunges

That isn’t to say that all is well for the power sector. The Covid-19 pandemic has caused the biggest shock to the global energy system in more than seven decades, with a 6% drop in demand for 2020[2] – the equivalent of losing the entire energy demand of India, the world’s third-largest energy consumer.

Taking the brunt of this significant decline is coal, which has fallen so far this year, that we believe the industry might never recover.

Statistics coming in from around the world support our view: the UK has marked a whole month without burning a single lump of coal for electricity generation –the longest uninterrupted period since 1882. Sweden has closed its last coal-fired plant two months ahead of schedule. And for the first time in history, the US will produce more energy from renewables than from coal this year. We don’t think coal is coming back any time soon, particularly as growing concerns over carbon emissions and climate change put project approvals in doubt.

Overall, the plunge in demand for nearly all major fuels is enormous, especially for coal, oil, and gas. But renewables are holding up, according to a new report by the International Energy Agency. It projects that solar PV and wind are on track to lift renewable energy generation by an impressive 5% in 2020, as governments take this opportunity of lower demand to reduce fossil fuel dependency and move to clean energy.

Additionally, as the economic impact of Covid-19 hits companies’ bottom line, they are starting to seek out cheaper energy sources to hold down costs, further boosting demand for wind and solar power. This momentous shock means that the energy industry that emerges from this crisis will be quite different from the one that came before, and we believe that renewables will shape the future of the energy world.

Technological advances keep driving costs down

One of the most obvious reasons renewables are set to do well, particularly in Latin America, is their low costs. This downward pricing trend is going to consolidate itself further as technological advances make solar and wind power cheaper – and better – as the years go by.

But don’t take our word for it. The latest report by the International Renewable Energy Agency (IRENA) shows that unsubsidized renewable energy is now the most affordable power source for many locations and markets, with cost reductions set to continue into the next decade.

Meanwhile, improvements in battery storage systems, which can effectively integrate high shares of solar and wind renewables into power systems, as well as an increase in availability of smart grid and metering systems around the region, will see low-cost renewable electricity generation continue to underpin Latin America’s energy sector transformation to 2050.

A new perspective from financiers

As governments look to boost their economies post-pandemic, capital demands for secure, profitable, and predictable returns will increase. Operational and greenfield renewables projects from companies like us, who have a strong track record in the industry, make even more sense at times like these.

In fact, because wind and photovoltaic power are no longer seen as nascent technologies, we’ve seen investors becoming more comfortable with investments in these sectors. The latest data from BNEF proves this: investment in renewable energy capacity worldwide climbed to US$282.2bn last year, up 1% from 2018’s US$280.2bn, even in the face of a subdued global investment landscape.

In Latin America, that growth was substantially higher. In 2019, Brazil lifted renewable energy capacity investment by 74% to US$6.5bn, while Mexico committed US$4.3bn, up 17%, and Chile US$4.9bn, up fourfold. Only Argentina bucked the trend, with an 18% fall.

We’re seeing investment coming into the sector from all sides. In the past five years, major project finance banks have increasingly offered long-term traditional non-recourse financing, but so, too, have the capital markets. This array of optionality allows developers to obtain more efficient financing in both cost and tenor terms, which then further drives down the cost of electricity, enabling contracts to be won at a lower price.

The growing trend toward sustainable finance is paying dividends in the Latin American renewables market, with investment-grade green bonds powering the construction of numerous projects around the region. Our recent issuance of a US$253mn private placement (USPP) with DNB Markets to refinance Javiera and build Sol del Desierto, two solar PV plants located in the north of Chile, is one example, marking the largest solar PV green USPP issuance in Latin America to date. Meanwhile, innovative structures, such as the US$114.4mn bond we issued for our El Naranjal and Del Litoral solar power plants in Uruguay, demonstrate the ability of local players to put together solid capital structuring. The financing was placed by DNB Markets and the Inter-American Investment Corporation (IDB-Invest) and arranged as an A/B bond structure with an investment-grade senior tranche and a sub-investment grade subordinated tranche, both at attractive rates and long tenors.

The rise of corporate PPAs

However, structuring the right kind of financing is only half of the battle. For investors, the key factor influencing decisions is the ability of an energy producer to sign supply contracts with offtakers with healthy financial track records.

Due in large part to pressure on corporations for sustainable and economical energy solutions, corporate power purchase agreements (PPAs), whereby businesses purchase electricity directly from independent generators instead of from a utility, have surged in Latin America.

2019 marked a record year for corporate PPAs in the region, as companies purchased 2GW of clean energy – a threefold increase over 2018. This figure is set to increase further as a growing number of firms aim to reduce emissions in line with the Paris Agreement, and sign-up to initiatives such as the RE100 target whereby they pledge to offset 100% of their electricity demand with clean energy.

But it is not just sustainability factors that are driving this trend. Market liberalization is also playing its part. Argentina, Brazil, Chile, Colombia, Mexico, and Peru have issued regulations that facilitate access to bilateral PPAs and spot markets, and we’ve seen corporations also look to these agreements for economic advantages, including long-term price predictability and the ability to hedge against future price increases.

As Latin America’s renewable energy and power storage market grows, yet more innovative structures are available to spread corporate PPAs to a larger number of players, with fewer take-or-pay contracts and a shift towards delivery-focused deals which aim to serve the load of the offtaker.

Investment and energy policies support the transition to renewables and boost economy

During last year’s UN Climate Conference COP25 in Madrid, a new regional initiative coordinated by the Latin American Energy Organization (OLADE) laid out plans to reach at least 70% of renewable energy in electricity by 2030. The commitment by Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Haiti, Honduras, Paraguay, and Peru is open for the participation of other countries in the region, and seeks to build upon the world-beating progress made by a series of reforms put in place by governments across the region which aim to lure investment into the Latin American renewable energy industry.

We believe Latin America will continue to lead the world in its dedication to the growth of the share of renewables in the region’s energy matrix, even in the face of an uncertain political context in some countries. We’ve seen for ourselves that although new administrations often bring with them new investment and energy policies, affecting appetite for different markets, the overarching commitment to clean energy across Latin America has remained pretty constant.

The continued profitability of renewable energy now stands in sharp contrast to other assets across the region, with many backers coming to view the sector as a relatively safer bet in these troubled times. In fact, beyond just being a safer bet, we believe renewables will help power Latin America’s recovery after Covid-19.

Land of opportunities – with the right partner

The renewable energy market in Latin America is at an inflection point, poised to expand substantially and help boost the economic recovery post-Covid. With favorable energy and investment policies and growing demand for clean power, the region provides unprecedented prospects for investors who are able to navigate the market. But not all opportunities are created equal. In order to take advantage of Latin America’s green energy revolution, investors must ensure they have the support of trusted partners who can structure profitable, secure transactions focused on strong risk management and bankable long-term and stable contracts with credit-worthy sponsors.

Atlas is a leading renewable energy generation company operating across all of Latin America. With one of the largest solar asset bases in the region, Atlas specializes in developing, building and operating large-scale renewable energy projects that are tailor-made for Latin America’s energy needs. For more information please contact us at: contacto@atlasren.com

SOURCES COMPILATION


[1] https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2297
[2] https://www.weforum.org/agenda/2020/05/covid19-energy-use-drop-crisis/

The uptake of bilateral renewable energy PPAs in Latin America has risen to record levels, but their adoption is still not fully mainstream. As pressure grows on corporations to find sustainable and economical energy solutions, we expect to see these innovative structures become a transformational feature of the region’s energy landscape – but finding the right partner to guide companies through what’s available will be key to allow for this trend to take hold.

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The Covid-19 pandemic is pushing the global economy into its first recession since 2009, and Latin America is feeling the strain. As governments bring in emergency measures and corporate leaders enact cost-cutting strategies, a return to normality is still some way off. However, the road to recovery could be paved by the opportunities presented by renewable energy, opening the way for a sustainable, more equitable future.

As the coronavirus outbreak continues to roil world markets, a fall in global economic activity is hurting Latin America’s goods and services exports, disrupting supply chains, and tightening financial conditions. In the markets we work in, companies are racing to cut costs, while governments are moving to mitigate the health, societal and economic impacts of the virus, with containment measures, emergency liquidity programs, and fiscal stimulus packages.

These short-term measures have served to address the immediate issues thrown up by the pandemic, but for sustainable, long-term resilience, we believe a solid energy strategy is going to be central to future plans – and renewables will provide the answer.

Company cost-cutting measures

In the Latin American markets where we operate, we’re seeing business leaders taking stock of their costs and trying to make accurate assessments about future revenue and draw up effective business plans. Research by global consulting firm Mercer backs this up: they found that almost two-thirds of Latin American companies are concerned about the economic impact of the crisis on their business, with 54% cutting immediate personnel and labor outlay.

These are quick fixes, but the indicators show that Covid-19 is going to need a long-term view. Latin American GDP is predicted to contract by around 5% this year, and domestic demand looks set to fall sharply as social distancing policies to curb the spread of the virus impact spending.

Depending on the industrial sector, energy accounts for anything from the first to the fourth largest operating cost, and we’re starting to see companies influence their cost structure by making choices about energy sourcing and consumption. 

Corporate power purchase agreements (PPAs) for renewable energy, whereby businesses purchase electricity directly from independent generators instead of from a utility, have risen in popularity in recent years, with 2019 seeing a threefold increase in deals in Latin America.

Structured as a contract between a corporate off-taker and a power producer, they serve as an agreement to buy electricity at a fixed price over an agreed period. For corporate buyers, this means visibility and certainty of future electricity costs as well as a hedge against energy price volatility –a key to thriving in the post-Covid-19 world.

Our team was the first to implement a solar private PPA in Chile some eight years ago, and we’ve since replicated this success in Brazil and Mexico. We’re seeing an increasing number of inquiries from companies across industries as they look to find an energy strategy that supports their balance sheet in these straitened times, and we believe this trend will only continue.

Governments look to renewables for a win

As in the rest of the world, people around Latin America have looked to their governments to provide solutions to the coronavirus crisis. Those perceived to have acted quickly have seen a groundswell of public support, but more far-reaching measures will be needed to set the economy in good stead for the coming months and years.

As governments now move from immediate firefighting to a longer-term view, a renewables-based energy transition can support a resilient and equitable recovery to the crisis that leaves nobody behind. We’ve seen this ourselves in our projects that bring clean, cheaper energy alternatives across the region. We’re not the only ones to believe in the power of renewables: In its Global Renewables Outlook, published in April this year, the International Renewable Energy Agency (IRENA) says that making the energy transition an integral part of the wider recovery will result in global GDP gains of almost US$100tn between now and 2050.

In this regard, Latin American countries are already ahead of the curve. They have set a collective target of 70% renewable energy use by 2030, more than double the European Union’s target, while 81% of the region’s nationally determined contributions (NDCs) to the Paris Agreement on climate change have quantified renewable power targets – versus 67% globally.

Rather than compounding the tragedy of Covid-19 by allowing it to hinder clean energy transitions, we believe Latin America’s governments have an unprecedented opportunity to help accelerate them by using the current situation to step up their climate ambitions and launch sustainable stimulus packages focused on clean energy.

With costs far below those of traditional power plants, many renewable technologies can be ramped up relatively quickly, helping to revive industries and create as many as 3.2 million[1] new jobs in the region, offsetting – at least partially – the social and economic impacts of the coronavirus outbreak.

As oil falls, renewables are a safe haven for energy investors

Covid-19 isn’t the only shock disrupting Latin America’s economies. The current collapse in crude prices to well below the marginal lifting cost per barrel in most oil plays in the region has put exploration and development projects on hold. Oversupply and falling demand have forced increasingly risk-averse investors to leave oil in their droves, with stocks and bonds in producers such as Ecopetrol, Petrobras, and Pemex falling significantly.

This heightened unpredictability of returns on hydrocarbon investments has further bolstered the business case for clean energy, which has been strengthening in recent years. Until very recently, fossil fuels still held a competitive advantage over renewable electricity generation. That is no longer the case. In fact, Latin America’s unsubsidized renewable energy is now often the most affordable power source for numerous locations and markets. We expect to see growing numbers of investors looking at solar and wind energy as a reliable, affordable, and scalable alternative, pumping funds into new projects which will support the region’s clean energy transition.

A glimpse of the future

Renewable energy’s ability to support the post-Covid recovery isn’t just about economics. It’s about improving health conditions and quality of life in Latin America’s cities.

In recent months, we’ve seen what could be possible in a cleaner energy system. Research by Carbon Brief shows that the coronavirus crisis could trigger the largest ever annual fall in CO2 emissions this year. As the world’s most urbanized region, with 80% of its population living in cities, Latin America has borne witness to this already. Santiago de Chile, one of the region’s most air-polluted metropolises, has seen a 30% decline in smog, while citizens from Bogota to Belo Horizonte have filled social media with incredulous photos of clear skies.

We believe this new awareness of what the future could hold if the right energy choices are made will lead to growing pressure on governments and corporations alike from the region’s young, politically active population to curb the most critical instances of urban air pollution.

The pandemic will usher in long-lasting changes, and companies, governments, and investors have a once-in-a-lifetime opportunity to play a leading role in the new post-coronavirus reality. Those that are able to bake in sustainable consumption, production, and progress towards carbon reduction targets to their business strategy will be at the crest of the wave, and, in our opinion, renewable energy’s cost savings, environmental benefits, and job creation opportunities will set it in good stead to become the backbone of growth as the region charts a path to recovery.

Sources Compilation


[1] Source: pp 145 IRENA Global Renewables Outlook 2020

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Latin America’s embrace of solar energy is enabling mining companies to procure more cost-competitive energy.

Energy Intensive Mining in Latin America

It is estimated that the global mining industry consumes 400 terawatt-hours of energy per year1, the equivalent of France’s yearly energy demand. A large portion of that energy is consumed in Latin America, home to the world’s largest deposits of copper, silver, lithium, and gold. The mining sector in this part of the world is a multi-billion-dollar industry and has increasingly been turning to renewable energy2 to help meet its energy demand3.

The final consumer mining product requires high energy intensive processes4 to meet the world’s growing demand. Currently, energy use from mining products accounts for over a third of mining operational costs5. However, as the easily accessible ore deposits become exhausted, operational costs are likely to increase and lead to more complex mining techniques, which in turn require greater energy.

Incorporating Renewable Energy into the Mining Process

To alleviate these issues, mining companies are increasingly turning to cheaper solar PV and wind power to meet requirements, reduce greenhouse gas emissions, and lower operating costs. Renewable energy from non-conventional sources in Latin America has been gaining momentum and proving to be a viable alternative energy solution. For example, over the last five years, Chile has increased renewable energy shares from 5% to 18% of total usage. Power generated by solar plants has become increasingly competitive compared to traditional forms of power – especially in Latin America, a region that benefits from excellent levels of untapped solar irradiation. Solar PV technology has seen dramatic cost reductions over the past decade, which combined with efficiency innovations, has led to pricing levels lower than 50% of conventional power costs (e.g. coal and gas). Also, solar PV and wind generation are reaching cost levels at half the cost of conventional hydro power. These changes lead to increased solar energy investment and displace conventional power.

It is estimated the global mining industry consumes 400 terawatt-hours of energy per year1, the equivalent of the yearly energy demand of France. A large portion of that energy is consumed in the mineral-rich Latin America.  Home to the world’s largest deposits of copper, silver, lithium, and gold, the mining sector in this part of the world is a multi-billion-dollar industry and has increasingly been turning to renewable energy2 to help meet its energy demand3.

The mining end product required to meet the world’s growing need of these elements consists of highly energy intensive processes4. Currently this energy use can account for over one third of the cost5 of a mining operation and is likely to increase as the low-hanging-fruit ore deposits become exhausted, leading to more complex mining techniques that have greater energy requirements.

Incorporating Renewable Energy into the Mining Process

In order to alleviate these issues, mining companies are increasingly turning to ever cheaper solar PV and wind power to meet their power requirements, reduce their greenhouse gas emissions, and lower their operating costs.

Renewable energy from non-conventional sources in Latin America has been gaining momentum and proving to be a viable alternative energy solution. For example, over the last five years alone, Chile has increased their renewable energy share from 5% to 18% of their total usage. Power generated by solar plants has become very competitive compared to traditional forms of power – especially in Latin America, a region that benefits from excellent levels of untapped solar irradiation. Solar PV technology has seen dramatic cost reductions over the past decade combined with efficiency innovations, leading to pricing levels that have reached even less than 50% of conventional power costs (e.g. coal and gas). Furthermore, solar PV (and Wind in certain regions) is also reaching cost levels that are half the cost of conventional hydro power.  These changes are leading to increasing investment in solar energy to displace conventional power.

Atlas Renewable Energy’s Javiera’ solar plant  in the Antofagasta region of northern Chile reflects a prime example of this trend towards renewable energy in mining. The 69 MW PV plant powers the Minera Los Pelambres copper mine, owned by Antofagasta Minerals, the largest private mining company in Chile. This project serves nearly 15% of the mine’s power requirements6.

Mining industries in Brazil, Colombia, Mexico, and Peru are also adopting a strategy of incorporating non-conventional renewable energy into their processes. By doing so, they source power at half the cost of conventional power, enhance their environmental credentials and enable business opportunities with organizations that value environmentally sustainable footprints. For example, technology companies relying on the region’s minerals, are increasingly demanding the implementation of carbon reduction measures2 from suppliers.

Future Outlook

By 2022, renewable sources will account for 5% to 8% of the global mining industries’ power consumption, with more ambitious targets aimed at 15%1. This drive towards renewable sources will lead to triple the global capacity by 20277.

Incorporating solar energy offers a unique opportunity for Latin American mining companies to meet their energy needs in a sustainable, reliable, and cost-effective way. Solar is no longer just about being sustainable, it’s a way for mining companies to stay competitive in an industry where cost reductions are critical.


Sources

  1. Slavin, Andrew. “Mining Industry Starts to Dig Renewables.” Energy and Mines, 7 June 2016, www.energyandmines.com/2016/06/mining-industry-starts-to-dig-renewables/.
  2. Bhattar, Payal. “Latin American Mining: Switching to Renewables.” Latin American Mining Switching to Renewables, 25 July 2018, www.wartsila.com/twentyfour7/energy/latin-american-mining-switching-to-renewables.
  3. Sanderson, Henry. “Miners Turn to Green Power Options.” Financial Times, Financial Times, 3 Oct. 2018, www.ft.com/content/b3b7fe4a-a5fc-11e8-a1b6-f368d365bf0e.
  4. Dickerson, Kelly. “How Gold Is Destroying Peru’s Rainforests.” Business Insider, Business Insider, 1 Nov. 2013, www.businessinsider.com/gold-mining-destroying-peruvian-amazon-2013-10.
  5. Gleeson, Daniel. “Miners Moving towards the Renewable Energy Path, Says Fitch Solutions.” International Mining, 11 Sept. 2018, www.im-mining.com/2018/09/11/miners-moving-towards-renewable-energy-path-says-fitch-solutions.
  6. Bellini, Emiliano. “Antofagasta Minerals Sells Stake in 69.5 MW PV Plant in Chile.” Pv Magazine International, 31 May 2017, www.pv-magazine.com/2017/05/31/antofagasta-minerals-sells-stake-in-69-5-mw-pv-plant-in-chile/
  7. Funicello-Paul, Lindsay. “Press Release | Renewable Energy in the Mining Industry.” Press Release | Renewable Energy in the Mining Industry, 27 Feb. 2019, www.navigantresearch.com/news-and-views/annual-revenue-for-renewables-and-energy-storage-in-the-mining-sector-is-expected-to-generate-roughl.

Like technology, renewables continuously benefit from systemic advances. Even so, not all breakthroughs arrive in the form of more efficient solar panels. Some come from breaking ground in financial innovation.

The financing of projects in the renewables sector performs the essential role of enabling the industry to progress. In other words, without viable financing providing funding for projects, the industry comes to a halt. New and improved methods of funding create novel opportunities for investors and, with better financial structuring come lower energy prices for consumers. Further, backing large-scale renewables projects in this way that reduces the cost of energy prices, enables further deployment of clean energy and economic growth in the region.

Atlas Renewable Energy Breaks Ground

Atlas Renewable Energy’s expansion is focused on Latin America’s emerging market economies. With ongoing technological and financial innovations, we have been able to offer clean energy in the region leveraging a deep track record in development, financing and execution. We believe tailored financial structuring can enable more accurate risk allocations resulting in lower prices to end consumers. This can be advancement that can be as consequential as solar technology enhancements.

Throughout the region we have developed several solar plants with different financing structures. One such project  is located in Uruguay, where our client for the energy produced is a state-owned company, UTE, that required a power purchase agreement (PPA) that lasted over 25 years. This posed an interesting challenge and opportunity because most banks that can fund these types of projects can only provide funding for 10 to 15 years, and a very additional few can provide up to some 18 years. We solved this by pioneering a new financing structure where two long-term private placements (i.e. bonds) were issued in the United States that allowed multiple investors around the world to participate in differing risk allocations – these bond investors are accustomed to longer tenor horizons.

The deal was specifically composed of an investment-grade senior bond totaling $103 million and the remainder came via a subordinated debt bond totaling $11.5 million, of which IDB-Invest funded a proportional share. (DNB Markets Inc. acted as co-arranger and placement agent of the senior and sub B tranches.)

The senior and subordinated bonds have a duration of 24 years and 15 years, respectively, after which the investors exit their investments and Atlas Renewable Energy continues to operate and supply the energy requirements for the remainder of the PPA. The deal was backed by IDB-Invest as the lender of record (of the Inter-American Development Bank Group, an affiliate of the World Bank) and was arranged as an A/B Bond structure that included both senior and subordinated note tranches. This collaboration was a completely novel arrangement in the context of Renewable projects in Latin America and allowed Atlas Renewable Energy to be presented with the Structured Bond Deal of the Year by Bonds & Loans Latin America Awards.

Award Ceremony in Bogotá, Carlos Barrera – CEO of Atlas Renewable Energy & Michael Shea – Head of Structured Finance receive the award.

What was particularly interesting about the deal is that it shows that international investors can and want to participate in the region’s energy development, that long-term tenors at very good rates can be secured and that this new financing structure can serve as a new model to help solve the long-term capital needs of the region. This is also testament to the proven-nature and stability of Renewable technologies; which investors are recognizing as low-risk and reliable over a truly long-term horizon.

Benefits of the B-Bond

Financing with the structure of B bonds allows for the expansion of substitute funding sources through capital markets for private investors under a multi-lateral umbrella, providing a strong and suitable alternative to bank funding or traditional capital markets funding. This type of financing aids in bringing additional liquidity and potential value to a given transaction, under the implicit political risk insurance structure from the IDB through its role as ‘lender of record’.

Capital Markets Innovation for Solar PV

The parameters required to achieve an investment-grade rating for a solar PV green bond remain quite onerous and conservative in nature. From a cash flows perspective, an investment-grade bond will require a relatively low percentage of the plant’s revenues to repay the associated debt (as compared to long-term bank loans, for example). Given the track-record of the PV technology as an asset class, there is ample investor appetite for risk exposure to additional cash flows at a competitive rate-of-return (up to 80% in the case of long-term bank loans); especially when there is a limited merchant component. For this reason, the incorporation of a subordinated or “mezzanine” tranche provides an interesting solution to achieve more robust leverage ratios, ultimately resulting in lower power prices for end consumers. Financial innovation can play a key role in the growth of renewables in Latam. When done right it can offer new possibilities for investors, attractive rates of return and energy savings for consumers. These strong wins for all parties involved, underscore the potential and bright future renewables have in Latin America and is one of the reasons for optimism in this industry.