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Renewable energy: investment opportunities among the headwinds

The government has revealed plans to invest £110 billion in electricity generation in order to ensure we meet our 15% renewables target by 2020. Should you get involved?

Renewable energy: investment opportunities among the headwinds

By 2020 the UK needs to generate 15% of its energy from wind, wave, solar and other renewable sources. And by 2050 we need to have reduced our carbon emissions by 80%.

How can investors capitalise on these developments?

Renewable energy is the future

In a white paper earlier this month the government revealed plans to invest £110 billion – more than double the current investment – in electricity generation in order to secure affordable and low carbon electricity.

Around a quarter of the UK’s existing electricity capacity – mainly coal and nuclear – are scheduled to close within the next decade, deepening our dependence on imported energy and leaving us open to volatile fossil fuel prices, secretary of state for energy and climate change Chris Huhne said.

Given that demand for electricity is expected to steadily increase to nearly double by 2050 due to electrification of carbon intensive sectors such as transport, ‘business as usual is not therefore an option’, he warned.

The UK is miles behind the rest of the world

The UK is so far behind that it needs to play catch up very quickly, said Clare Brook, fund manager at WHEB Asset Management, which runs a sustainability fund . Developing countries such as India and China as well as parts of Europe, Germany for example, and Latin America are soaring ahead.

The UK has the capacity to produce enough offshore wind to power every single home in the country and then some. In fact according to the Department for Energy and Climate Change (DECC) we have the best wind, wave and tidal resources in Europe and largest market for offshore wind in the world. Take into account solar energy, biomass and ground and air source heat pumps, for example, and we have an abundance of green energy available to us.

‘The problem is transportation of the energy, storage and regulation of supply,’ Brook said. Huge investment still needs to be made in the infrastructure and distribution of this type of energy.

Where should you invest?

Power generation and energy efficiency – technology designed to help reduce the amount of energy we use – are the two main types of investments in the renewables sector, Gurpreet Gujral, clean tech equity analyst at Ambrian Capital, said. ‘We like certain parts of both’.

Looking beyond UK shores, Gujral said: ‘Power generation in emerging markets like India is interesting. India has a thirst for power and has introduced financial incentives to reward independent power producers'.

In the UK, however, ‘waste to energy’ power generation is one area to watch, he said. We are behind the continent in terms of recycling, Gujral explained, and increasing landfill taxes means that in three or four years companies will need to seek out cheaper alternatives for disposing waste.

On the energy efficiency side, Gujral highlighted companies in LED lighting, though warned that this sector is becoming increasingly commoditised. ‘We are seeing a lot of products from Asia which are low cost and difficult to compete with,’ he explained. Investors therefore should look at companies which target niche areas in which technology requirements are high, Gujral said. Dialight (DIA) for example, which targets specialised lighting markets that are difficult to penetrate, has performed well.

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7 comments so far. Why not have your say?


Jul 27, 2011 at 08:59

I still can not make up my mind.

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Lets Face It

Jul 27, 2011 at 10:39

There is no growth and to solve the problem the government just want more QE (Quantative Easing - Printing money), a better solution to the energy problem and economic growth is to create a computerised interfrated transport system, mainly solar powered. The bottom line is that you get in a 'buggy' and a satellite/computer/driverless control takes you from a to b.

It may sound too futuristic but lets just get cracking now and lead the world. It will happen eventually but it will create its own massive rewards for the world, after all, its exactly these sort of futuristic projects that our ancestors (the Victorians) made happen, they were able to use foresight and invest in the future, unlike our generation who can't see past the end of their noses.

Printing more money and making more cuts is so negative and soon we will all be back in the dark ages

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David Harvey

Jul 27, 2011 at 15:31

I am on the verge of buying a set of Solar Panels. By doing so now I would get 43.3p ( index linked and guaranteed for 25 years) per unit produced. I also get the advantage of "some" free electricity and not to forget the miserly 3p I get paid for those units I fail to use. For me this is a good investment as all I have at present is ISA's and this represents 10% on my money.

OK then, Apart from the fact that it is paid for by those who cannot have or afford or want solar panels which is questionable morally. The point is they are not effective and without the index linked 43.3p per unit would be an almost complete loss of investment.

The benefits of all this is questionable. All the work we do over many years of this can be undone by a single volcano eruption. Clearly it is nice to have cleaner and safer power as opposed to dirty sources. But it may break us to do it.

We need to encourage those young people that are able to get educated and find alternative sources that really work. Just one round of bankers bonuses would pay for research that could find what we need and give us something to sell as well. In our haste to meet quotas are we throwing good money after bad rubbish.

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Jul 27, 2011 at 16:19

The problem with renewables (such as wind and solar) is that they only make sense while the feed-in tariffs are unsustainably high. At the moment the 43.3p per unit is about four times the consumer price for electricity. Unless there is a technology leap the government support for renewables must be significantly cut, probably just at the point where the investments would be beginning to show life. There might be a couple of years reasonable growth but my guess is that one would have to live on the edge. Arbitrary changes by governments would kill the companies off very quickly.

In some respects its similar to Southern Cross. They built a business based upon cheap money and high fees from local authorities. Yes the cheap money went away but so did the fees from local authorities. The government has already changed the rules regarding feed-in tariffs and there's nothing to stop them doing it again.

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Jul 27, 2011 at 16:23

Another response to David Harvey - Alternatively if we are going to have HS2, why doesn't the government fund solar panels and wind turbines along the length as a source of power. The additional noise of the turbines won't be noticed over the trains and the solar panels could form a roof to stop some of the noise escaping.


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David Harvey

Jul 27, 2011 at 20:31

Yes Mark22 you are right. It seems the FIT that you get at the time of registry is written in law for 25 years. By next April it will be reconsidered and they say dropped to 38 p. They have already curbed the farmers who were filling fields with panels. Why plant crops when you can get the FIT income from 50KW of panels in an open field.

The FIT is being "sold" as being in law but what faith can we really have when we have a government that can apparently give and take as they wish. Look at pensions and retirement age even for the over 50's.

The thing is, that none of these things really work in a financial sense, wind turbines certainly don't. Companies are starting up all over putting panels up almost for free but they keep the FIT. This is a mark of how lucrative the expected income will be over the next 25 years.

I would not be even considering it without the FIT. Renewable sources are no where near practical yet and a waste of money. We have lots of Turbines near me and they are an eyesore, not only that but they are not really silent if you live next to a field of them not to mention the shadows rushing past when the sun is behind them, how about that flashing on your windows when you are watching TV.

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Jul 27, 2011 at 21:38

This subject has been going round in sickening circles since the 1970's. The need for new sources of power arose primarily from the effects of burning coal and emmitting the poisonous fumes. The war brough the promise of nuclear until the problems of waste made it too political. Now and yet again, all other possibilities are being festered about. Yesterday (about twenty years ago) was the time to be developing alternatives. If we forever dither about this way or that then I may be able to help you all. Having been around awhile, I may be just about able to turn out the last light when the rest of you have left the sinking ship.

Will you young ens and politicians never make up your minds and do something.

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