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Financing renewables: rising to the challenge in turbulent times


Tom Woolerton, Senior Investment Manager at Octopus Energy Generation, summarises the key themes from a thought-provoking Renewable UK Legal & Finance conference in London.


RenewableUK's Director of Policy Ana Musat and Former Chancellor Kwasi Kwarteng MP

Kwasi’s cause for optimism:


The Legal & Finance conference on 23rd November coincided with the release on the same day of a new report from the International Energy Agency. Citing one of the findings from this publication in her closing remarks at the end of the conference, Ana Musat (Executive Director for Policy & Engagement at RenewableUK) told the audience that in order to meet net zero targets, oil and gas companies would need to be directing 50% of their capital expenditure towards clean energy projects by 2030. This compares to the 2.5% they spent in 2022. It was a striking illustration of the scale of the task and what needs to change in terms of where capital is pointed.


Back at the start of the day, and in an on-stage interview with Ana, MP and ex-Chancellor Kwasi Kwarteng had opened the conference by painting a picture of how rapidly the industry's landscape can shift. In 2019, before his time in office, we were pre-Covid, pre-war in Ukraine, and enjoying an environment of stable power prices - a world away from where we find ourselves today. And he reminded us that back in 2012 - little more than a decade ago - 40% of the UK's electricity came from coal, a stark contrast to the miniscule proportion today. His message was an upbeat one: if this much has changed over a few short years, imagine how much can - and will - change by 2030. So there is plenty of reason for optimism.


Bumps in the road:


Speaking on Rishi Sunak's net zero policy changes announced in September, Mr Kwarteng suggested that the media had exacerbated the expected impact. That said, he was open in his disapproval of at least some of the changes, particularly those around the sale of petrol and diesel cars and the impact on the electric vehicle industry. He commented that "attracting capital relies on there not being chopping and changing of targets and support", and the change to car sales legislation in Sunak's announcement was an example of just that. He also spoke of the failure of CfD AR5, and how this now brings AR6 into sharp focus as one that simply must deliver.


New solutions bring new challenges:


Later sessions covered investment structures for emerging technologies, with a focus on floating offshore wind. One point that drew consensus across the panel was the fact that today there exist over one hundred different floating designs. In order to unlock scaled financing, there needs to be convergence to much smaller number, else the throughput of money from investors and lenders will be arduous. A second challenge flagged was port infrastructure (also one that is a focus of RenewableUK), with panellists describing Scottish ports in particular as being "not fit for purpose" for floating roll-out. One solution should be to find ways to unlock a flow of institutional investment into ports.


REMA: the wrong tool for the right job?


On to REMA (the Review of Electricity Market Arrangements), and panellists were broadly aligned in a view that overcomplicating market design at a time when vast amounts of new investment is needed is potentially a risky strategy. Arguments were also made that a re-design of market arrangements is the wrong tool to solve the problems at hand - and focussing on relieving grid constraints and freeing up planning systems were potentially easier low hanging fruit to yield quicker and more impactful results.


Looking forward


Later on, a session on maintaining returns on projects in a world of high interest rates was surprisingly upbeat. Broad takeaways were that the sector is still doing well (better than other infrastructure: "H1 2023 saw more investment into renewables than H1 2022"), public sentiment remains in favour of renewables, and that the economic environment is, of course, cyclical: high interest rates won't last forever, and regulatory change will come soon enough. In the meantime, investors need to be selective and focus on seeking out quality pipeline. This, though, is surely easier said than done when we are looking for mass-scale investment. Back at the opening session, Mr Kwarteng has been asked what he sees as the biggest risk to net zero. His response was, simply, "the ability to finance". Not many at this conference would argue against that.



Ends



About the Shadow Board

In addition to the main Board, RenewableUK has set up a Shadow Board to provide a wider range of views on key issues to Board Members. They provide valuable insights and fresh perspectives. RenewableUK provides this opportunity to Shadow Board members to help develop their careers.


The Shadow Board Members represent companies from every part of the renewable energy sector. It brings expertise across a broad range of areas such as: project development, digitalisation, project management, investment, asset management, business development, supply chain development, policy and public affairs.


The current Shadow Board will come to the end of their tenure at the end of this year.


About the author

Tom Woolerton has worked in energy investments for Octopus since 2014, and has been fortunate to experience its exciting rise from niche player in the industry to household name. Alongside colleagues, he’s deployed funds into solar, onshore wind, offshore wind, gas peaking, biomass, and battery projects. His interest in energy was sparked by his earlier chemistry PhD research in the development of ‘solar fuel’ technologies: systems that use sunlight and specialist catalysts to drive the conversion of carbon dioxide back into energy-rich molecules.

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