These are dynamic and exciting times for the UK energy sector as the movement towards renewable power gathers momentum and the UK has become the first major economy to pass a net zero emission law.
This means the UK will bring all greenhouse gas emissions to net zero by 2050. In addition, we have 2020 targets to meet which focus on greenhouse gas emissions, energy from renewables and energy efficiency.
This commitment has given a spur to the transition to renewable power, as we move away from traditional forms of energy generation. In the coming years, our daily lives will become more driven by the need for electricity, from appliances in our home, which will be linked via the internet, to our vehicles, which will no longer be powered by fossil fuels. Nuclear power, when the next generation comes online, will take up some of the slack that is missing when coal disappears, but at the same time, we are going to need more renewable power. However, there have been significant problems with the nuclear sector in the UK, with Japanese developers Hitachi and Toshiba having pulled out of two significant projects in the UK.
This year’s serious power outage, which was caused by two generators shutting down, triggering a failure on the National Grid network and leaving parts of the UK in darkness, has drawn attention to the fact that as our traditional baseload power generators comes offline, we are in danger if we don’t replace it, with the risk of further blackouts. The offshore wind power sector, which increasingly receives relatively small subsidies from the government, is particularly strong in the UK, but there is little doubt that we are going to need more solar and onshore wind power in the future. Both of these power generation technologies, which are costly to set up, do not currently qualify to bid for subsidies from the government.
There are a few solar farms in the UK, such as Cleve Hill in Kent, which are being developed without subsidies. There are also a few onshore wind farms in Scotland proceeding on an unsubsidised basis, but there is a growing consensus that these technologies would all be helped significantly if they were able to compete for subsidies again.
Interestingly, as well as a number of traditional oil and gas companies, such as Shell, BP and Total, increasingly investing in renewables, EDF Energy has only in the last few weeks bought battery storage and electric vehicle charging company Pivot Power, which gives an indication of the direction of travel in the sector.
In addition, we are at the beginning of a potential growth of battery storage projects in the UK and a significant number of investors are looking at putting money in those sorts of initiatives. Undoubtedly, given the intermittent nature of certain renewable power generation, we are going to need more energy storage projects, which can store electricity when it’s not needed.
There are a significant number of investors, particularly infrastructure stakeholders and other financial sponsors, who are interested in investing in renewables and have the money to do it.
Further investment in and financing of UK renewables would certainly be assisted by allowing a wider range of technologies to bid for subsidies, although the growing availability of power purchase agreements is to some extent helping to fill the gap. Equally, investment in batteries and other energy storage projects will be greatly assisted if these projects have the benefit of back-up power contracts, allowing them to build up a ‘revenue stack’.
The UK energy sector is certainly going through a period of change, but change can bring investment opportunities.
For more information, speak to the Hewitsons energy team on 01908 247010 (Milton Keynes office) or 01604 233233 (Northampton)