Renewable energy projects can offer significant investment opportunities for developers, investors and landowners, with recent high profile investors including Bill Gates who has announced $2 billion investment in green energy technology and research, and The National Trust’s announcement for £30 million investment in renewable energy to heat and power more of the historic places that it looks after.
However with the sector changing fast in terms of the support mechanisms, the question is: which onshore technology provides the best investor returns?
An assessment by property consultancy Carter Jonas’ specialist Energy team has looked at each technology against key investment criteria to produce its annual Energy Index 2015. Across Wind, Solar Photovoltaic, Biomass Heating, Anaerobic Digestion, Hydroelectric, and Ground-source Heat Pumps, it has considered factors such as development costs, value versus development costs, planning approval, development timescale and Internal Rate of Return (IRR).
It has also taken into account the recent Department of Energy and Climate Change (DECC)’s proposals to remove support for on-shore wind and solar farms under the Renewable Obligation (RO) from April 2016, factors which Carter Jonas believes have presented a significant setback to the UK’s renewable industry.
A 50kW PV Rooftop project is considered the most attractive technology from an investment perspective. Ranked first on Carter Jonas’ risk benefit table, whilst it does not deliver the highest IRR, it is considered relatively low risk and scores well in most categories.
A 5MW Solar PV Park or 10MW Wind Farm have historically been some of the most attractive technologies for investors, but were ranked eighth and ninth respectively. However due to the loss of support under the Renewable Obligation, this has significantly reduced the projected IRR’s for both technologies, thereby extinguishing the potential development value of the sites once consented, and making them relatively unattractive.
Biomass is also an attractive investment, despite recent cuts to the Renewable Heat Incentive (RHI), it was ranked second. It is important to note that small scale (under 200kW) biomass is financially challenging due to the lower RHI, and the report considers a system greater than 200kW. In particular, Biomass is an excellent opportunity for properties off the gas grid.
A 500kW Wind Turbine is ranked highly at third as it still delivers the highest return on investment for the right site. However Wind has a lower planning approval rate and also low development costs’ score, reflecting the high development costs and risks associated with securing planning for sites.
A 1MW Waste Anaerobic Digestion (AD) and a 500 kW Farm AD were ranked fourth and sixth respectively as operation and maintenance are higher than other renewable energy technologies, and there is volatility of financial support mechanisms, particularly the reductions in the biomethane injection tariff (RHI).
Ground-Source Heat Pumps (GSHP) are ranked fifth, despite a fair IRR and low risk at planning. This is because, relative to the size of the technology, GSHPs require more investment and a longer timeframe to develop, with less significant income potential for an investor.
A 500 kW Hydro was ranked seventh as projects can require extensive environmental and ecological studies to obtain consent, the planning process can be complex and lengthy, and costs and resource income can vary significantly between sites.
Andrew Watkin, head of energy and marine, Carter Jonas said: “The UK has a fantastic pool of natural resources and we continue to call for the Government to get behind the renewable sector.
“When considering renewable energy investment opportunities, it is prudent to consider the risks against the potential benefits. To help our clients understand their options when it comes to onshore renewable energy, we grouped the various factors together to show the relative risk versus benefit.
“500kW Wind has the highest benefit but also has very high risk, while a 50kW Solar Scheme also has good benefit with significantly less risk. Due to recent changes to incentives, large solar and wind farms now offer investors a much lower benefit.
“Our research has identified the most attractive renewable technology opportunities available, at the present time, according to key investment factors. However each opportunity will be driven by site specific circumstances and we would always recommend careful assessment and due diligence of individual projects prior to any investment.”
Andrew Watkin added: “The recent proposals by the DECC have presented a significant blow to the renewable industry in the UK, particularly at a time where projections were that solar would be subsidy free by 2020, based on previous projected investment. As an investment, renewable projects are generally not mature enough to withstand a complete removal of any support mechanism.
“For renewable energy to be successful without support, several critical changes would need to occur within the industry: reduced costs of installation, reduced cost of grid connection, and increased value for sale of electricity.
“Overall, the industry needs support from the Government, not opposition with continual regulatory, planning and financial barriers driving investment away from the sector. Needless to say, the best projects will remain the sites with the best resource: solar irradiation, wind speed, and so forth, and the lowest development cost.”
Two Ancient Japanese Philosophies Are the Future of Eco-Living
Our obsession with all things new has blighted the planet. We have a waste crisis, particularly when it comes to plastic. US scientists have calculated the total amount of plastic ever made – 8.3 billion tons! Unfortunately, only 9% of this is estimated to have been recycled. And current global trends point to there being 12 billion tons of plastic waste by 2050.
However, two ancient Japanese philosophies are providing an antidote to the excesses of modern life. By emphasizing the elimination of waste and the acceptance of the old and imperfect, the concepts of Mottainai and Wabi-Sabi have positively influenced Japanese life for centuries.
They are now making their way into the consciousness of the Western mainstream, with an increasing influence in the UK and US. By encouraging us to be frugal with our possessions, (i.e. using natural materials for interior design) these concepts can be the future of eco-living.
What is Wabi-Sabi and Mottainai??
Wabi-Sabi emphasizes an acceptance of transience and imperfection. Although Wabi had the original meaning of sad and lonely, it has come to describe those that are simple, unmaterialistic and at one with nature. The term Sabi is defined as the “the bloom of time”, and has evolved into a new meaning: taking pleasure and seeing beauty in things that are old and faded.
Any flaws in objects, like cracks or marks, are cherished because they illustrate the passage of time. Wear and tear is seen as a representation of their loving use. This makes it intrinsically linked to Wabi, due to its emphasis on simplicity and rejection of materialism.
In the West, Wabi-Sabi has infiltrated many elements of daily life, from cuisine to interior design. Specialist Japanese homeware companies, like Sansho, source handmade products that embody the Wabi-Sabi philosophy. Their products, largely made from natural materials, are handcrafted by traditional Japanese artisans – meaning no two pieces are the same and no two pieces are “perfect” in size or shape.
Mottainai is a term expressing a feeling of regret concerning waste, translating roughly in English to either “what a waste!” or “Don’t waste!”. The philosophy emphasizes the intrinsic value of a resource or object, and is linked to hinto animism, the notion that all objects have a spirit, or ‘kami’. The idea that we are part of nature is a key part of Japanese psychology.
Mottainai also has origins in Buddhist philosophy. The Buddhist monastic tradition emphasizes a life of frugality, to allow us to concentrate on attaining enlightenment. It is from this move towards frugality that a link to Mottainai as a concept of waste can be made.
How have Wabi-Sabi and Mottainai promoted eco living?
Wabi-Sabi is still a prominent feature of Japanese life today, and has remained instrumental in the way people design their homes. The ideas of imperfection and frugality are hugely influential.
For example, instead of buying a brand-new kitchen table, many Japanese people instead retain a table that has been passed through the generations. Although its long use can be seen by various marks and scratches, Wabi-Sabi has taught people that they should value it because of its imperfect nature. Those scratches and marks are a story and signify the passage of time. This is a far cry from what we typically associate with the Western World.
Like Wabi Sabi, Mottainai is manifested throughout Japanese life, creating a great respect for Japanese resources. This has had a major impact on home design. For example, the Japanese prefer natural materials in their homes, such as using soil and dried grass as thermal insulation.
Their influence in the UK
The UK appears to be increasingly influenced by thes two concepts. Some new reports indicate that Wabi Sabi has been labelled as ‘the trend of 2018’. For example, Japanese ofuro baths inspired the project that won the New London Architecture’s 2017 Don’t Move, Improve award. Ofuro baths are smaller than typical baths, use less water, and are usually made out of natural materials, like hinoki wood.
Many other UK properties have also been influenced by these philosophies, such as natural Kebony wood being applied to the external cladding of a Victorian property in Hampstead; or a house in Lancaster Gate using rice paper partitions as sub-dividers. These examples embody the spirit of both philosophies. They are representative of Mottainai because of their use of natural resources to discourage waste. And they’re reflective of Wabi-Sabi because they accept imperfect materials that have not been engineered or modified.
In a world that is plagued by mass over-consumption and an incessant need for novelty, the ancient concepts of Mottainai and Wabi-Sabi provide a blueprint for living a more sustainable life. They help us to reduce consumption and put less of a strain on the planet. This refreshing mindset can help us transform the way we go about our day to day lives.
What Should We Make of The Clean Growth Strategy?
It was hardly surprising the Clean Growth Strategy (CGS) was much anticipated by industry and environmentalists. After all, its publication was pushed back a couple of times. But with the document now in the public domain, and the Government having run a consultation on its content, what ultimately should we make of what’s perhaps one of the most important publications to come out of the Department for Business, Energy and the Industrial Strategy (BEIS) in the past 12 months?
The starting point, inevitably, is to decide what the document is and isn’t. It is, certainly, a lengthy and considered direction-setter – not just for the Government, but for business and industry, and indeed for consumers. While much of the content was favourably received in terms of highlighting ways to ensure clean growth, critics – not unjustifiably – suggested it was long on pages but short on detailed and finite policy commitments, accompanied by clear timeframes for action.
A Strategy, Instead of a Plan
But should we really be surprised? The answer, in all honesty, is probably not really. BEIS ministers had made no secret of the fact they would be publishing a ‘strategy’ as opposed to a ‘plan,’ and that gave every indication the CGS would set a direction of travel and be largely aspirational. The Government had consulted on its content, and will likely respond to the consultation during the course of 2018. And that’s when we might see more defined policy commitments and timeframes from action.
The second criticism one might level at the CGS is that indicated the use of ‘flexibilities’ to achieve targets set in the carbon budgets – essentially using past results to offset more recent failings to keep pace with emissions targets. Claire Perry has since appeared in front of the BEIS Select Committee and insisted she would be personally disappointed if the UK used flexibilities to fill the shortfall in meeting the fourth and fifth carbon budgets, but this is difficult ground for the Government. The Committee on Climate Change was critical of the proposed use of efficiencies, which would somewhat undermine ministers’ good intentions and commitment to clean growth – particularly set against November’s Budget, in which the Chancellor maintained the current carbon price floor (potentially giving a reprieve to coal) and introduced tax changes favourable to North Sea oil producers.
A 12 Month Green Energy Initiative with Real Teeth
But, there is much to appreciate and commend about the CGS. It fits into a 12-month narrative for BEIS ministers, in which they have clearly shown a commitment to clean growth, improving energy efficiency and cutting carbon emissions. Those 12 months have seen the launch of the Industrial Strategy – firstly in Green Paper form, which led to the launch of the Faraday Challenge, and then a White Paper in which clean growth was considered a ‘grand challenge’ for government. Throughout these publications – and indeed again with the CGS – the Government has shown itself to be an advocate of smart systems and demand response, including the development of battery technology.
Electrical Storage Development at Center of Broader Green Energy Push
While the Faraday Challenge is primarily focused on the development of batteries to support the proliferation of electric vehicles (which will support cuts to carbon emissions), it will also drive down technology costs, supporting the deployment of small and utility-scale storage that will fully harness the capability of renewables. Solar and wind made record contributions to UK electricity generation in 2017, and the development of storage capacity will help both reduce consumer costs and support decarbonisation.
The other thing the CGS showed us it that the Government is happy to be a disrupter in the energy market. The headline from the publication was the plans for legislation to empower Ofgem to cap the costs of Standard Variable Tariffs. This had been an aspiration of ministers for months, and there’s little doubt that driving down costs for consumers will be a trend within BEIS policy throughout 2018.
But the Government also seems happy to support disruption in the renewables market, as evidenced by the commitment (in the CGS) to more than half a billion pounds of investment in Pot 2 of Contracts for Difference (CfDs) – where the focus will be on emerging rather than established technologies.
This inevitably prompted ire from some within the industry, particularly proponents of solar, which is making an increasing contribution to the UK’s energy mix. But, again, we shouldn’t really be surprised. Since the subsidy cuts of 2015, ministers have given no indication or cause to think there will be public money afforded to solar development. Including solar within the CfD auction would have been a seismic shift in policy. And while ministers’ insistence in subsidy-free solar as the way forward has been shown to be based on a single project, we should expect that as costs continue to be driven down and solar makes record contributions to electricity generation, investment will follow – and there will ultimately be more subsidy-free solar farms, albeit perhaps not in 2018.
Meanwhile, by promoting emerging technologies like remote island wind, the Government appears to be favouring diversification and that it has a range of resources available to meet consumer demand. Perhaps more prescient than the decision to exclude established renewables from the CfD auction is the subsequent confirmation in the budget that Pot 2 of CfDs will be the last commitment of public money to renewable energy before 2025.
In short, we should view the CGS as a step in the right direction, albeit one the Government should be elaborating on in its consultation response. Its publication, coupled with the advancement this year of the Industrial Strategy indicates ministers are committed to the clean growth agenda. The question is now how the aspirations set out in the CGS – including the development of demand response capacity for the grid, and improving the energy efficiency of commercial and residential premises – will be realised.
It’s a step in the right direction. But, inevitably, there’s much more work to do.
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