Author Mark Richards
Renewable energy in the UK is now big business. But with the country committed to an ambitious programme of reducing carbon emissions, we still need to do more to match many smaller, less developed countries.
In 1997 the world’s leading nations signed the Kyoto Protocol – a commitment to reduce greenhouse gases, based on the belief that global warming exists, and that it has been caused by man-made emissions of CO2 (carbon dioxide).
International agreements take time, and Kyoto did not come into force until 2005. It was followed in 2015 by 195 countries accepting the Paris Agreement, which will start in 2020. The UK was one of those signatories and has set ambitious targets to reduce carbon emissions by the year 2030.
The ‘public face’ of renewable energy
Clearly, the best way to reduce carbon emissions is by getting more of your energy requirements from renewable sources – and if you were out and about this weekend you may well have seen yet another hillside covered by yet another group of wind turbines. They are fast becoming a feature of the British countryside – although I still cannot get used to the regimented ranks of them standing in the sea.
…Or maybe you saw a field full of solar panels, the latest cash crop that the British farmer seems to have fallen in love with.
But renewable energy is not just your local farmer putting a wind turbine on top of a hill or deciding that solar panels are a better bet than oil seed rape. It is now – as it needs to be if Britain is to meet its targets – big business, as a recent report on merger and acquisition (M&A) activity in the renewable energy sector confirmed, as activity in the sector more than doubled in 2016.
Renewable energy is big business
Overall levels of project finance in the renewable energy sector rose 5.7% to £18.5bn, with M&A activity worth a record £6.6bn according to UK law firm TLT’s renewable energy finance report, complied with industry analysts Clean Energy Pipeline.
M&A activity in offshore wind increased from £384m in 2015 to £3.4bn in 2016 – a near ten-fold increase. Onshore wind deals doubled from £609m in 2015 to £1.2bn in 2016, with biomass activity (an industry term for getting energy by burning wood or other organic matter) also hitting a record £498m in the period.
“The data for 2016 clearly shows a strong, robust sector adapting to a subsidy-free era. Renewable projects are a good source of long-term and stable returns for investors,”
said the TLT head of energy and renewables, Maria Connolly.
Solar power was the only part of the renewable energy sector where M&A activity dropped but this was expected, with the end of the government subsidy scheme.
What should we look for in the future?
M&A activity is expected to stay strong in 2017 and we may start to see investors moving into less heralded areas such as energy storage – the capture and storage of energy for use at a later time. Connolly said, “energy storage is widely held to be the technology which will change the face of the sector [and it is] already attracting considerable investment interest. The sector is expanding rapidly, with UK battery capacity poised to grow up to 100 times by 2020.
How does the UK compare?
The figures for the UK look encouraging. But how do they compare to the rest of the world? Unfortunately, the answer is ‘pretty badly.’ As you might expect, China is the world’s leading producer of renewable energy, producing 1,300 terawatt hours of electricity per year. (A terawatt hour – TWh – is equivalent to a billion kilowatt hours. To put that into some sort of perspective, Wikipedia states that the total UK use of electricity in 2014 was 2,249 terawatt hours.)
The US is 2nd with 550TWh and Brazil 3rd with 450TWh: the UK does not feature in the top ten.
But you would expect China and the US to be at the top of that league table: a more pertinent question is ‘what percentage of a country’s electricity comes from renewable sources?’ Here China and the US do far less well, respectively generating 24.4% and 14.3% of their electricity from renewable sources. The UK is also well down the league table, generating just 22.3% with more than half of that coming from wind power.
The winners and losers
So who is at the top of the league table? There are several countries with near 100% records – Albania, the Congo, Costa Rica, Iceland, Ethiopia, Laos, Paraguay and Nepal. You might well argue that those are not the biggest economies in the world and that if your total electricity usage is small it is much easier to fulfil the need from renewable sources.
But there must be something for more developed countries to learn? After all, looking at our larger colleagues in the EU (well, at least until March 2019…) none of Germany, France, Italy and Spain produce even half of their electricity from renewable sources. Even Greece – which surely has sunshine if it has nothing else – produces just 17% of its energy from renewables. Norway – a country equally blessed with natural renewable resources, albeit of a different kind – records a figure of 98%.
What we can learn from Costa Rica
Perhaps the best way to learn lessons is to look at one country that has succeeded spectacularly. Thanks to its unique geography and commitment to environmental preservation Costa Rica met 99% of its energy needs in 2015 from renewable sources, using hydroelectric, geothermal, solar, wind and other low-carbon sources. The country aims to be entirely carbon neutral by 2021.
75% of Costa Rica’s electricity is generated by hydroelectric plants, taking advantage of the country’s abundant river system and heavy tropical rainfalls. The rest comes from geothermal, biomass, wind and solar sources. The Costa Rican Electricity Institute (ICE) said that it had met its target for 2015 despite an extremely dry year:
“We are closing 2015 with renewable electricity milestones that have put us in the global spotlight.”
ICE predicted an even better result in 2016 when a new $2.3bn hydro-electric plant comes online.
With energy storage developing rapidly, countries like Costa Rica will soon be producing more energy than they need. If the ‘developed world’ does not catch up, then there is every prospect of it having to import renewable energy in order to meet its targets.