Comment: Green economy opportunities

Once upon a time, large-scale renewables were a fairy story. Commercial solar power generation in the UK was laughable and anyone who suggested we would have 20GW of solar power or more than 30GW of wind power would have had their sanity questioned.

No more. As the head of National Grid, Steve Holliday, said: "I made a comment to the Energy Minister four years ago that there was little probability we would have 20GW of solar power in the UK. Now three of our scenarios have more than 20GW of solar power by 2035." This shows the pace of change in the electricity market and reflects huge investment requirements over the next 10 years, both globally and in the UK. Much of that will be in renewables.

There are also some fundamental structural changes in the industry that will increase the opportunities for private equity involvement and the type of risk and return available. This was a market mainly for the Goliaths, the big utilities building large centralised power stations and one centralised transmission and distribution grid. While consolidation is still happening in some areas, there are opportunities for different operators in others.

Increasingly, businesses are generating more of their own electricity. Decentralised energy generation from smaller, more agile plants is expected to grow. Small-scale generation is predicted to reach a third of total UK generation in the near term.

Renewables also play a far greater part of new power plant investment now, making up almost half of all new power plants globally. In the longer term, far greater use for electric cars and electric heating is expected to create even more opportunity.

Another key change is that renewables, so far, have mostly relied on subsidies, causing some major issues (and law suits) when governments decided to withdraw them. That will increasingly be consigned to history, as the cost reduction for solar panels and wind turbines now means they are increasingly able to match the costs of traditional forms of power generation.

The cost reduction for solar panels and wind turbines now means they are increasingly able to match the costs of traditional forms of power generation," Colin Johnson, Grant Thornton 

New frontier, new opportunities
All this leads to a range of potential investment opportunities in renewables, not only in the current forms of wind, solar and waste-to-energy, but also energy storage, heat distribution networks, demand response, electric vehicles and the circular/zero waste economy. Frontier technologies create additional opportunities for VCs, ranging from floating wind turbines to solar paint and generation by water evaporation.

All of this is unlikely to come without pain though, with some suggesting that the renewables industry in Britain is about to "fall off a cliff" as it adapts to the withdrawal of subsidies. Size and future prospects mean it will not just disappear, though. Short-term reductions in demand and pricing will cause distress, but can also create opportunities and drive cost reductions through the supply chain, which will make renewables more competitive in the long term.

And with competition underway for what is the dominant power source, there will be uncertainties about how profitable some investments will be, so care will be needed in considering opportunities as profits are not automatic. All in all, plenty of opportunities, but a need to understand how the marketplace is changing.

Further reading

• Performance

Comment: Prolific year bodes well for 2016

• 17 Dec 2015

• Buyouts

Comment: Redefining the off-market deal

• 15 Oct 2015

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Infrastructure
• Comment
• Top story
• Grant Thornton
• Cleantech
• Expert Voices