Is the timing right for clean energy? I think so. Why? Because the energy industry has been in recession for over 7 years. In that time, traditional utility businesses in the EU have collapsed in value. The market capitalisation values of traditional utilities have collapsed to levels where Finance Directors resign before signing off major investments, and major suppliers of nuclear technology are in financial difficulty so that many nuclear power station projects are in question. Coal prices have tumbled and major coal producers have declared bankruptcy; many coal-fired projects are being shut down before commissioning. The future is so unclear that investing in centralised power generation is becoming increasingly risky.
194 countries have signed the COP21 Paris treaty and many countries have set implemented environmental policies. Mechanisms like emissions trading and feed in tariffs have been used to encourage the uptake of clean technologies. There are calls from public and private sectors to move towards lower emissions, many businesses are increasing their use of renewables and many states in the US have set aggressive targets for clean power. China is the most attractive market for renewables and has been stopping fossil fuel projects, India is shifting from coal to solar. Emissions in the EU are increasing despite several years of legislation, so it is clear that more needs to be done and faster.
And yet our demand for energy utilisation has increased – energy efficiency and low / zero-carbon products are creeping in. Our attitudes to energy are changing. If we all start buying electric cars (and this is forecast to happen within the next decade) then demand for power will increase So electric cars only make environmental sense if the power comes from renewable zero-carbon electricity generation.
The main renewable generation technologies being adopted are solar and wind. Costs for these are coming down, so now they are beginning to make economic sense without the need for incentives, and demand is set to grow further. The UK, for example, has potentially enough solar generation that other generators may need to turn off during the summer peaks. However, both wind and solar are intermittent power sources. Back-up is required if we want to keep the lights on. Germany has already experienced problems with a lack of generating capacity, especially on calm nights. That said, there are some forms of renewable which can deliver baseload or dispatchable power, such as geothermal and biogas. These are great where such resources exist, but they are not ubiquitous.
We are in a period of fundamental change in the energy industry. With this, comes opportunity. The fast-moving, innovative organisations will be the ones to lead the charge, whether they are flexible utilities able to adapt, or SMEs developing innovative new products. Interesting times lie ahead. Energy has been a challenging area for investors over recent years, but our demand for energy continues to grow. Major opportunities will exist in the new market – for investor and for innovators alike.