Why energy suppliers need to invest in renewable energy
It’s no surprise that everyone in the energy industry is talking about renewables. What was the future of energy is now the present, with renewable energy making up 33% of total UK energy production. This proportion will only grow as the Government, and governments across the world, set ambitious targets to end their reliance on fossil fuels and use more eco-friendly energy.
For these reasons, investing in the renewable energy industry should be an attractive option that could provide significant returns. This is true for any type of investor, but it is especially relevant for energy suppliers. Investing in renewable energy could bring more than monetary benefit; it could be the key to their survival.
Why is investing in renewable energy essential for energy suppliers? What are the associated risks and how can energy suppliers invest in the most effective way?
A bright outlook for renewable energy
In 2018, 61% of all new energy created in the UK was from renewable sources. The Government is committed to measures that will only see that figure increase, such as achieving net zero carbon emissions by 2050.
The cost of producing renewable energy, such as offshore wind power, is falling. Bioenergy, energy from renewable sources such as wood, straw and waste, is increasing. Despite cuts in government subsidies, solar still remains a commercially viable source of energy.
This trend is being replicated across the world as countries unite to try and alleviate the effects of climate change.
Investors are clamouring to get involved with innovative renewable energy companies. But why is investing in renewable energy an attractive prospect for energy companies specifically?
Investing in renewables can boost profits
Investing in renewable energy is a profitable exercise for energy suppliers.
Energy consumption across the world is rising and the bulk of this new energy will be renewable. Supply needs to keep up with demand. There should be no shortage of customers for an energy supplier creating renewable energy. Therefore, returns should be substantial.
As technology advances, renewable energy becomes more efficient to produce. This leads to cost savings. Energy suppliers that invest now can reap the benefits in the years to come.
It’s the right thing to do
The world is rapidly becoming more eco-friendly. It’s not just renewable energy people are concerned about; it’s plastic in the oceans, food production, sustainability in manufacturing and much more. Anything that accelerates the move to cleaner, renewable energy is the right thing to do.
There is also a marketing angle associated with investing in renewables. Any energy supplier investing in renewable energy can gain excellent publicity. It makes for great marketing opportunities in advertising and on social media. It helps retaining and winning customers. Today’s consumers like companies that think greener.
Future proof your business
The facts are, with the ambitious targets set by governments around the world, if you are an energy company who is not involved in renewables, your days are numbered. It’s essential that energy suppliers who want their business models to thrive in the decades to come, invest now, before their competitors do. Get in on the ground floor now.
Of course, no investments are entirely free of risk. There will still be some challenges you may have to overcome when you invest in renewable energy.
Many of the companies operating in the renewable energy space are new and small. While this makes them agile and effective, more likely to come up with great ideas, it also means that if they encounter problems, their value can drop quickly. This makes them potentially volatile investment opportunities. The company you invest in might not be ‘the one’.
At the moment, renewable energy is a topic everyone is talking about. However, this may not be the case forever. If innovation in the industry slows down, renewable energy may not carry the same weight with investors. This means companies in the sector will see drops in their value.
Finally, governments around the world could change their views towards renewable energy. It’s unlikely, but not out of the question, that a new Prime Minister in the UK could radically change their policy regarding promoting renewable energy. They could scrap or postpone their targets. This would also lead to a drop in value for renewable energy investments.
How to invest
On balance, however, investing in renewable energy should still be a must for energy suppliers looking to thrive and survive. There are many different ways they can invest.
One way is to forge partnerships with renewable energy companies and invest in specific renewable energy projects. For example, SSE has formed a partnership with Viking Energy Shetland (VES) to build a 103-turbine onshore wind farm in the Shetland Islands. The advantages of investing in this way are that you share the risk. You also get the good publicity around the creation of sustainable energy, as well as the job of building and operating the infrastructure. However, you also have to share the profits.
Another way to invest is to simply acquire renewable energy innovators and take them under your wing. An example of this would be E.ON’s ongoing attempt to buy Innogy, a renewable energy company currently controlled by RWE. This is a way for energy suppliers to have control of their own investment portfolio. They may also be able to find cost savings as they integrate with their current operations. However, investing in specialist companies always carries a risk.
The final way energy suppliers can invest in renewable energy is just to do it themselves. They can fund and carry out their own projects. They make the investment and reap all the rewards. They have all the control and the returns could be substantial, albeit with some risk. You also need to bring renewable energy expertise into your business. An example of this would be EDF Energy’s Teesside Offshore Wind Farm project, completed in 2013.
A golden opportunity
While many energy suppliers have already made investments in renewable energy, as detailed above, there is still more to do. As demand grows for energy from sustainable sources, investment will need to grow to help producers step up to the mark. The opportunity is there for energy suppliers. Will they grab it?