One of the main advantages of renewable energy, particularly at the moment, is it is extremely cost efficient. Despite the recent controversial decision by the UK government to severely reduce financial incentives for renewable projects, both solar photovoltaic (PV) and onshore wind are now poised to become cost-competitive with fossil fuels. This has in turn increased the attractiveness of renewables to both consumers and investors. Even with these subsidy reductions, wind and solar are poised to assume a central role in the energy market and are set to continue to grow well into the future.
With regard to operations and maintenance (O&M), large scale solar PV plants are among the cheapest renewable technologies at $25 (£16.37) per kilowatt. The International Energy Agency (IEA) also predicts that initial capital costs for solar will continue to fall up to 2035, further evidence that renewables are catching up with fossil fuels in terms of cost and competitiveness. Onshore wind O&M costs are also falling, currently standing at $46 (£30.13) per kilowatt and expected to fall below that of coal by 2020.
In 2014, returns on investment (ROI) for renewables in the UK stood at around 9% per year, four times the best returns on Isas. However, since then, the UK sector has been subjected to the government subsidy cuts, with the latest being an unexpected reduction in tax relief for community renewable energy. This is having a dire effect on investor confidence, with Jan Willem-Bode of Mongoose Energy commenting that many investors feel like pulling the plug. However, the global picture couldn’t be more different, with renewable energy investment racing ahead in recent years.
Although it may make more sense currently for investors to focus on renewable projects abroad, the rate of growth elsewhere suggests that the UK position is merely a political schism that will turn itself around in the future, in the face of global isolation or a change of government. Furthermore, many investors believe that the UK renewable sector will survive the government’s subsidy cuts and will rebound, returning to steady and increased growth, if only because of the sheer determination of local communities to make this happen. Larger investors are also putting pressure on the government to change its tack.
The facts have already become clear to many around the world, investors and consumers alike. As the costs to global economies incurred from increasing climate change climb steadily, the sensible option is to invest in the technologies that are helping the world counter this problem. Renewable energy is at the heart of this trend, protecting the environment and the economy and challenging climate change, reducing long-term energy costs in the face of another potential future rise in global gas and oil prices while also delivering steady and increasingly lucrative returns on investment. This is why in virtually every country around the world, renewable energy deployment is gathering speed and will continue to do so.
Naturally, the successful outcome of the Paris COP21 climate change talks will drive investment forward. France is already planning to spend billions of euros on renewable energy projects in Africa, Bill Gates and Mark Zuckerberg got together even before the conference to form the Breakthrough Energy Coalition aiming to drive forward investment in clean energy research and the RE100 initiative is committed to a 100% renewable energy target. All across the world, CEOs of large companies such as Siemens, Vestas, Suzlon Energy and Gamesa, and many smaller businesses too, are gearing up for a surge in renewable energy investment. And that has to be a good sign.
Written by Quentin Scott, Marketing Director of Low Carbon.