Key considerations for investment in green energy

The renewable energy industry needs to rethink its approach this year, with investment likely to drop in the face of cuts in Government support

Renewable energy is an investment-heavy industry. According to Bloomberg New Energy Finance (BNEF), a record $23.4bn (£15.2bn) was invested in clean energy in the UK in 2015, compared with £11bn invested in UK oil and gas, according to Oil and Gas UK’s Economic Report 2015. The figures for 2016 are likely to be lower though, following the Government’s decision in December 2015 to cut £500m–£600m of support.
1. Renewables are vital to the UK energy mix going forwardWhile the industry may suffer a short-term dip, the long-term need for renewable energy will not disappear. Under EU law, the UK is obliged to source 15% of its energy from renewable sources by 2020. That requirement may fall away post-Brexit, but there are other targets in UK domestic law that will still apply, including the Climate Change Act 2008, which requires the UK to reduce greenhouse gas emissions by 80% by 2050.
2. Strong growth is apparent in the UK sector, despite lagging behind other countriesAt the moment, the UK is still a long way behind some European countries. In 2015, 22.4% of the UK’s electricity came from renewable sources, according to the Department for Business, Energy & Industrial Strategy (BEIS). In comparison, Denmark sourced 58% from renewables, followed by Sweden (57%) and Italy (42%). Even so, renewable energy in the UK has seen strong growth in recent years. So, the bigger question is not so much whether there will be investment, but where the investment might go.
£15.2bn was invested in clean energy in the UK in 2015 3. An increase in renewable resources is evidentThe sources of investment capital have been expanding. According to the BEIS renewable energy planning database, there are more than 200 renewable energy projects under construction, involving 6.2GW of electricity-generating capacity.

While many are solar and wind, they also include biomass, hydro and other energy sources. A further 700 projects with capacity of 22.5GW are awaiting construction.
4. Levelised cost is falling for renewable energy, but rising for conventional energyOne issue that has held back the renewable sector in the past has been its high cost compared to conventional sources. However, the overall cost situation is now rapidly changing. The most recent figures from the Government – compiled in 2013 – show that the levelised cost (a measure used to compare different power sources) is falling for renewable energy but rising for conventional energy. The cost of onshore wind projects greater than 5MW, for example, is predicted to drop by 7% between 2014 and 2030 to £97/MWh.
5. Renewables to challenge conventional energy sources According to more recent research by BNEF, onshore wind is now fully competitive with gas and coal once carbon costs are taken into account.

There is one area of the industry that appears to be booming, and that is energy storage. “Billions of pounds will be invested,” says David Goatman, head of energy at consultancy Knight Frank. “Storage is where most of the new money is going. It feels to me like the early days of solar.”

To date, the main storage solution has been batteries, but some newer technologies are also beginning to emerge.
6. Challenges lie aheadScott McGregor, CEO of redT energy, says the UK is still behind the leading markets when it comes to storage, although he predicts it will accelerate in time. “I am quite pessimistic right now in the UK as a viable market for energy storage. Energy storage comes down to economics. You’ve got to make money,” he says, pointing to parts of Africa and Asia as well as Germany, the US and Australia as more attractive. “The UK is definitely behind the other markets, but it will hit a tipping point and it will suddenly take off.”

This article was originally published in the January print edition of The Review. The print edition is available to all members who opt in to receive it, except student members. All eligible members who would like to receive future editions in the post should log in to MyCISI, click on My Account/Communications and set their preference to 'Yes'.
Published: 18 Jan 2017
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