Published by Jessica Weisman-Pitts
Posted on November 7, 2022
By Jonathan Hick, Investment Director at Triple Point
It is no secret that the energy crisis is set to worsen as winter approaches, with Putin likely to further reduce gas and oil exports to Europe. The war has exposed Europe’s dependence on Russia for its energy needs and has reinforced why the UK must become energy self-sufficient by stepping up investment to accelerate the shift towards a resilient renewable energy system.
The immediacy of this is unquestionable with the National Grid refusing to rule out blackouts this winter.[1] In 2021, the International Energy Agency (IEA) released a roadmap for the global energy sector which makes clear that only through rapid and large deployment of all available clean and efficient energy technologies can the global energy sector become resilient and reach net zero by 2050.[2]
This represents a big challenge for society. It also represents a unique investment opportunity. Estimates from the UN have suggested that private actors could provide over two-thirds of the $2.6 trillion in investment needed every year to 2025 to put the world on a path to net zero by 2050 (up from $900 billion annual investment between 2016 – 2020).[3] With the economics of low-carbon investments rapidly improving, there will be more opportunities to accelerate the shift to renewables and target long-duration assets with secure, inflation-linked income. There are a number of investment vehicles in operation today with exactly that focus and momentum is growing.
Winds of change
So, with the well-worn context in place, what can the UK government do by way of actionable, implementable changes? Certainly, the previous government’s plans carried initial promise. The Growth Plan 2022 opened applications for £2.1 billion of funding over the next two years to support local authorities, housing associations, schools and hospital invest in energy efficiency and renewable heating. However, with the current administration only now putting their feet under the table, and COP27 fast approaching, this is a critical time for the future of UK climate policy.
Indeed, the previous government demonstrated promise through the relaxation of planning restrictions surrounding onshore wind and the construction of wind farms. This is welcome news considering the sustainability and longevity of wind farms, with onshore wind universally acknowledged to be the cheapest form of generation of power in the UK. By empowering those in the renewable energy sector with less red tape and inhibitive planning processes, the government incentivises further private investment within the UK and simultaneously lays the groundwork for a transition to net zero which brings with it cheaper energy prices for consumers.
Waste not, want not
The generation of energy is one thing but ensuring that energy is not wasted enroute to households, offices, and industrial settings is another. The amount of electricity produced which is lost before it reaches homes and businesses needs to be reined in if the national grid is to fully maximise its energy output. This loss of surplus energy is already felt acutely across renewable sources such as wind and solar, currently not utilised to their full capacity. Not only is this significant loss of energy both inefficient and costly but it also weakens UK energy security at a time where geopolitical tensions necessitate that the country is able to draw on its own energy reserves in the immediate future.
There are many businesses eager to adopt green practices and technologies to combat rising energy costs and whose race for survival in the face of a cost-of-living crisis and economic uncertainty means they are unable to wait for government action. These businesses must marry the current six-month government cap on the energy price with practical solutions to lower their costs. These include onsite generation, to increase self-sufficiency, and a host of energy efficiency measures. Among these, LED lighting and rooftop solar systems will not only reduce their bills but also their carbon footprint.
A broad approach
Overall, investment in the UK energy system cannot be implemented in silos but must be done at a broader level, with diversification, as part of a holistic approach, much like that which underpins TENT’s investment strategy. The IEA advises that for a balanced energy system there must be equilibrium between supply, demand, and balancing supply and demand, which is why TENT invests in assets that efficiency generate, store, and consumes waste energy and heat. TENT’s assets contribute to its total target net asset value (NAV) of 7-8% per annum through this diversified portfolio, including hydroelectric, BESS and Combined Heat and Power (CHP) assets.
The opportunity for investors is significant given the vast investment needed and the valuation that stocks such as TENT sit at. TENT recently moved to the premium listing segment of the LSE to increase its accessibility to a broader group of investors and improve diversity. Its cash producing, inflationary protected assets perform well above target with a very strong pipeline. In a global investment climate placing ever greater importance on green and energy efficient systems, energy transition technology and infrastructure projects present a prime opportunity for investors seeking reliable, medium to long-term returns, with a purpose.
With an estimated $32 trillion worth of green compatible climate investment needed to hit global net zero emissions goals by 2030, including both infrastructure and technology, a global commitment to innovative and adaptive solutions is imperative. Energy efficiency technology and infrastructure are widely regarded as the most important immediate term strategies to realise the UK government’s commitments to cut GHG emissions by at least 72% by 2030. Now is the time for a rapid response to the energy crisis with clean solutions right in front of us.
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