Take a look at the technologies and trends driving the growth of the renewable energy sector, and how it could provide an important investment opportunity
Renewable energy comes from natural sources that are constantly replenished, such as the sun and wind. This contrasts to coal, gas and oil, the traditional way of producing energy, which release emissions that significantly contribute to climate change and global warming.
There are a few types of renewable energy, but solar and wind are by far the most established and have become mainstream in the UK over the past two decades.
Electricity can be used to:
As electricity has such widespread use and is easy to create from renewable sources, the sector has been the main area of focus for the UK government in its mission to slash carbon emissions over the coming years. In the early 2000s, more than a third the UK’s electricity was generated from coal. Today, almost none of it is.
Renewable heat is also becoming more established, although the sector is less well developed than the renewable electricity sector.
Renewable heat can be created through:
Net zero is a legally binding government strategy that aims to eliminate the amount of greenhouse gases we send into the atmosphere by 2050. Any emissions we create must be balanced out by removing an equivalent amount from the atmosphere - for example through trees, which absorb and store carbon emissions.
Obviously, the aim is to dramatically reduce carbon emissions we send into the atmosphere and this is where renewable energy is crucial. The government has already said there will be a ban on the sale of new petrol and diesel cars by 2030 to push more people to drive zero emission vehicles that run on electricity created through renewable resources.
The government is now looking at where else to focus attention on boosting the use of renewable energy.
Possible areas of focus could be:
As well as being much kinder to the environment than fossil fuels, generating our own renewable energy means the UK is less dependent on energy supplied from overseas. This means energy prices could become more stable.
The current energy crisis has shown us the impact of surging oil prices. Many UK households will see their annual energy bills rise by 54% from April as the average dual-fuel tariff hits £1,971. The price of oil has almost doubled in the past year due to higher global demand as economies reopened following covid-19 lockdowns, and Russia’s invasion of Ukraine that could hit Russia’s oil exports. [The increase in the price of natural gas in the UK is probably even more relevant and even more dramatic.]
Producing your own renewable energy means you are producing your own electricity at the location you need it from unlimited resources.
The biggest benefit is that your bills should be cheaper and you are relieving stress on GB’s electricity transmission systems because your electricity is being consumed at the same location it is produced. Through specialist investor Armstrong Capital Management, the Proven Estate Planning Service (PEPS) works with many big companies that have seen the benefits of setting up a renewable energy system through solar panels on their roof.
Of course, it is likely you will be paying some costs to the national grid, as you may not be generating enough electricity to fully power your building at all times. If you are using electricity beyond daylight hours, the electricity will not be free unless you have a battery that can capture surplus energy to use another time.
But typically, a company’s energy bill is reduced by at least two-thirds when they create their own electricity.
The biggest issue is what to do when the sun isn't shining or it isn’t windy. Renewable energy sources are strongly reliant on the correct weather conditions, so if the conditions aren’t right there needs to be an alternative.
Renewable energy sites also require a lot of space and installation costs are high. For many households and businesses, the biggest hurdle of renewable energy is the cost of installation. Prices of solar panels have dropped in the past decade, but the price will run into several thousands of pounds for installation.
Businesses will often agree a specialist financing deal to fund the cost, through specialist investment firms such as Armstrong Capital Management. Money is raised from investors, and investors get a regular return through pre-agreed prices the businesses pay to use the electricity.
The transition to renewable energy will primarily be funded by private investors, with the government offering incentives to help attract private capital.
For investors, the attraction is they receive an income through regular payouts while preserving capital and contributing to the next phase of renewables growth.
Investors also have the confidence that there is long-term government support for the sector. For example, the government recently announced funding of £285m a year for building the next generation of energy projects. The government no longer funds new solar projects, but there may be funding available for new technologies such as heat pumps and green hydrogen for transport.
Private investors can either invest through an investment trust, or through specialist investment firms such as Armstrong Capital Management and ProVen.
ProVen, managed by Beringea, is one of the UK’s leading providers of tax-efficient investment opportunities* - managing more than £300m on behalf of around 10,000 retail investors. Armstrong Capital, a leader in equity and debt funding of UK based solar projects and other energy businesses, leads the solar strategy of the ProVen Estate Planning Service. Please contact your financial adviser to find out more, or call us on 020 7845 7820.
*UK tax rules and regulations are subject to change, and such changes may be retrospective. Your ability to obtain tax reliefs will depend on your personal circumstances.
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Find out more about the ProVen VCTs’ annual shareholder event, which featured insights from Beringea, the investment manager, the boards of the two funds, as well as several of the companies from the portfolio
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