The opportunities and challenges of green energy investment have been gently simmering under the surface for decades. However, the past year has seen the temperature rise on environmental issues, which may have brought both the challenges and opportunities to a boiling point.
In the UK, ground movements such as Extinction Rebellion have demonstrated increasing public pressure to pursue green policies, faster. Of course, to do so would require substantial investment into renewable energy production, energy conservation, greener transport and other environmental innovations.
What is interesting, however, is that these movements have been reflected in political change. This was clearly demonstrated by December’s UK election race, which focused on environmental issues more than ever before. While policy differed from party to party, each of the major parties’ manifestos included ambitious targets for cutting carbon emissions.
In fact, the government has made several key announcements this year, including a key pledge to make the country carbon neutral by 2050. This will be kick-started by a Green Finance Strategy, which plans to invest £2.5 billion into the sector between 2015 and 2021. A £500 million investment in a first-of-a-kind small modular reactor (SMR) will also hasten a shift towards low-carbon techniques within energy-intensive industries. These government investment schemes will no doubt be reflected in more green innovation in the energy sector and, in turn, more private investment.
Then, of course, Greta Thunberg’s selection as Time Magazine’s person of the year illustrates that environmentalism is both global and intergenerational concern. The correspondingly the negative reaction to Thunberg also demonstrates the resistance in certain quarters to change. While investors might sit on the side lines and try to weigh up the forces at play, the fact is there is a great opportunity in the energy sector to take advantage of. The challenge doesn’t lie in reluctance to innovate, but in barriers to change.
Shift from problems to opportunities
Global awareness initiatives alone will not solve a key challenge facing emerging businesses and technologies. In part because most of the media focus is directed to the impact of climate change as opposed to the solutions designed to overcome it. The consequences of climate change are, of course, in no doubt, but growing emphasis is required to highlight the innovation opportunities. Avoiding the doom and gloom from setting in and showcasing solutions to enable positive action.
Despite the headwinds there has never been a better time to encourage investors in the sector due to Government support. The government has created a £1 billion Ayrton Fund to develop affordable and clean energy “that will improve lives”. It has also pledged to deliver two million jobs in clean growth, and invest 800 million in the infrastructure required for carbon capture and storage (CCS) clusters. This in turn will have a major economic impact and underline the UK’s existing strength in the sector within a global context.
It certainly true if we are really going to get to carbon neutral by 2050 much of our infrastructure, from power generation and distribution to transport and housing stock, will need to be replaced or updated. According to some estimates, the low-carbon economy is likely to grow from 2% of the UK’s total output today to 8% by 2030 and 13% by 2050.
Exciting innovation worthy of praise
The UK already has several examples of strikingly innovative new entrants in the sector. In just a few years, renewable energy provider Bulb has captured 5% of the UK’s market share, by pairing smart digital disruption with a green agenda.
However, Bulb has been faced with major difficulties with industry regulations that heralded losses of £24 million at the start of 2019 and saw the demise of nine other small suppliers in the same time period. Yet, Bulb’s success along with other renewable providers such as Ovo shows that resilience is possible.
Another UK success story is Ceres Power, a fuel cell provider that built on 30 years of innovation that started with the modern lithium battery. Ceres has demonstrated that, despite a long process of R&D to get to this point, fuel cell technology can now be commercially viable. The listed company reported enviable growth in 2019, with revenue doubling for the forth year in a row.
These successes have in turn provided new opportunities to invest in new sustainable energy creators. To date, development and infrastructure costs as opposed to energy costs, have detracted investors. This is likely to change however, so long as the government builds on existing legislation and commits the funding it has promised.
The investment in Sustainable Marine Energy illustrates the possibilities after receiving £3.5 million earlier in 2019 to develop tidal power for Candadian markets. The Scottish government committed £1 million, while Schottel Hydro committed the rest. Shell and BP have also set up corporate venture capital arms, which is only going to further a trend for collaborative public and private funding. Two startups already benefiting include virtual power plant technology firm, Limejump, and AI building energy tech company, Grid Edge.
An opportunity to reap financial and societal rewards
This investment shift will also be seen at a European level. In the past year, more than 60 countries have pledged to eliminate their carbon footprint by 2050. Voters in Germany, Denmark, The Netherlands, Austria and Sweden – especially young people – now list climate change as their top priority. And although the lack of action in the US or China could be seen of global concern, for UK investors it presents a major opportunity to develop a competitive advantage ahead of a subsequent global rollout.
Clearly, change takes time, but hopefully not as long as the 100 years it took from Alessandro Volta’s electrical experiments to electricity being used in factories and houses. But historical delays were often fueled by a lack of communication and awareness. In today’s era of innovation, investors have an opportunity to move beyond the headlines in the pursuit of meaningful change.
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