The amount of money pouring into clean energy technology has now overtaken investment in fossil fuels according to United Nations figures - a clear signal of which way the wind is blowing in terms of the world’s future energy generation.
And as governments around the world continue to crank up legislation in the area, investors are being drawn to the opportunities on offer in both the renewable energy generation and energy efficiency markets.
Environmental legislation has mushroomed over the last couple of years and this year is set to be no exception as the world builds up to December’s UN convention on climate change in Copenhagen from which the successor to the Kyoto Protocol is likely to emerge.
Catalyst Corporate Finance partner Mark Wilson said the intensification in new legislation was being driven by two key issues.
“One of them is climate change, which is indisputable now, and the second is energy security.
“This means there is an increased sense of urgency and a political will that we have to change the way we operate.”
In terms of energy security, the global market has seen huge volatility in the prices of oil and gas recently.
Combined with the fact that the UK’s current generating capacity is set to shrink in the next decade as a generation of coal-fired power stations start to come offline and a number of nuclear power stations are decommissioned, this means there is an urgent need to find alternatives if the UK is to avoid becoming increasingly dependent on fossil-fuel rich states in the Middle East and Russia.
Last year saw the introduction of the Energy Act which brought in measures such as a feed-in tariff to encourage small-scale renewable energy generation and a renewable heat incentive.
At the same time as the Energy Act was passed, the Climate Change Act also came into force which introduced the world’s first long-term legally binding framework to tackle the dangers of climate change. The act committed the UK to reducing greenhouse emissions by at least 80 per cent by 2050.
This year will see the publication of the Government’s Renewable Energy Strategy which sets out the details of how it plans to meet the UK’s EU targets of 15 per cent of energy from renewables by 2020.
And the Government has just finished consulting on the Heat and Energy Saving Strategy which sets out
an aim for emissions from existing buildings to be approaching zero by 2050.
Later this year world leaders will meet in Copenhagen to thrash out the successor to the Kyoto Protocol, which will undoubtedly unleash another round of targets which should increase expansion in the low-carbon sector.
Mr Wilson said in terms of the renewables sector, the UK had two key areas of strength - wind energy and energy from waste.
“There is, we believe about £82 billion worth of investment to be invested up to 2020 in offshore and onshore wind.
“However there are issues with wind as it’s not constant. Therefore you can expect 35 per cent efficiency in certain circumstances whereas for a coal-fired power station you can probably expect 90 to 95 per cent.
“The area of investment that sits alongside that is energy from waste. There are already very established and well-proven commercial technologies in this area.”
Although at the moment most of the energy from waste plants are traditional mass burn incineration fitted with energy recovery systems, there are a number of other technologies that can address different aspects of the waste industry.
“The problem with mass burn incineration is that it is high capital but there are other technologies which are more modular and are employable on a smaller scale and can be used for microgeneration.”
One of these is anaerobic digestion - a process where micro-organisms break down biodegradable material such as wastewater sludges and organic wastes to provide a source of renewable energy.
Mr Wilson said: “What’s really exciting about this industry is the possibilities are quite substantial - we are seeing waste businesses transform themselves into energy businesses and we are seeing others coming into the sector who are traditionally not investors into it.
“There is a lot of government support and that has become attractive to investors because of some of the incentives that the government has put into place.”
Bioenergy benefits from the Renewables Obligation, the Government mechanism to support renewable energy by requiring electricity suppliers to source a proportion of their electricity from renewable sources.
Renewable energy generators receive Renewables Obligation Certificates (ROCs) for each MWh of electricity generated which can then be sold to electricity suppliers who need to make up their shortfall.
Mr Wilson said that many technologies in the waste-to-energy sector were eligible for double ROCS
“That really makes the economics of this sector very attractive,” he said.
Mr Wilson pointed to the strength of the Midlands in this area, citing companies such as Monsal, an environmental technology company specialising in digestion technology and Enpure, a process engineering business in the environmental sector, which is working on the Greater Manchester waste PFI, one of the largest waste PFI projects in Europe.
Advantage West Midlands business development manager, environmental technologies cluster Ralph Hepworth said that owing to the region’s status as a large generator of waste, energy from waste very important in the West Midlands.
“If you go to Germany and stand on a car park and look in both directions like I did recently the first thing you will see is an indecent amount of wind turbines and also in the other direction the factory that makes the wind turbines.”
Mr Hepworth said the West Midlands had a similar potential for a closed-loop system in terms of energy from waste, where waste generated in the region can be converted to energy locally which can then be used in the region.
Another division of the cleantech market which holds potential for companies in the West Midlands is the supply of components to the wind industry.
Advantage West Midlands (AWM) has been helping the region’s engineering firms use their expertise gained from more traditional sectors by reapplying it to the cleantech sector.
Mr Hepworth said there was a wealth of smaller engineering firms, many of which supply the oil and gas sector and electrical engineering market, who are repositioning themselves as suppliers to the environmental technology companies.
“A wind turbine has four tonnes of bolts in it and they are not the sort of bolts you buy at B&Q. There are four or five companies that come to mind in the Black Country that supply this area.”
He pointed to companies such as nuts and bolts manufacturer Doran Engineering in Willenhall and bolted joint solutions and machining services firm Hydratight in Walsall.
However Mr Wilson said that the UK had been slow to move into this area and the region’s firms were playing catch-up with their European counterparts.
“In terms of the wind sector the Midlands should be a great starting point for a lot of the components that go into wind farms.
“But the problem has been that we are so far behind the eight ball in the UK that there are European companies already have an established hold on supplying into renewable sector. There’s a lot of catch up to do.”
Hugh Goulbourne, an environmental campaigner and solicitor at Cobbetts, said that although Germany had done a good job in supporting its solar and wind sector, the UK should look to different technologies to expand its cleantech sector.
“Yes we need to catch up but do we want to catch up with the same technologies? Possibly not.”
“The UK is second behind Portugal in terms of wave technology and that’s something the renewable energy strategy is currently proposing some ambitious targets on.
“Then if you look at energy efficiency it’s probably is Denmark that is the leading nation in Europe. I think that the Heat and Energy Saving Strategy will put us on a pretty good footing for that.”
Source - Birmingham Post
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