Helene Winch, investment strategist at Low Carbon, discusses the post COP21 environment and key outcomes
The Paris Climate Change Summit (COP21) saw world leaders and large businesses gather to decide upon a global deal to help mitigate the negative effects of climate change. Amongst the key outcomes of this conference was a landmark deal, agreed by all 195 nations, which commits governments to “holding the increase in the global average temperature to well below 2 degrees above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 degrees above pre-industrial-levels”.
From COP21 it was plain to see that real progress is being made. It isn’t just governments and multinational businesses that can lead the way in making ‘carbon neutral’ pledges. All sectors and areas of industry across the world can make sustainable changes to help fuel the low carbon economy.
Highlights from Low Carbon’s attendance at COP21 included:
- Hearing how enlightened corporates have already started investing in renewable opportunities at scale with the likes of IKEA and Google investing 2GW and installing 650,000 solar panels respectively
- Understanding that investment opportunities in long-term ownership structures exist at scale and at market returns, despite market perceptions that the opportunities are too small or too difficult
- Recognising the need to review the asset class definition for renewable energy infrastructure investments – the connotations of using terms such as “private equity”, “green” and “energy” all potentially representing a barrier to investment
- Acknowledging that Carbon footprinting can perversely lead to divestment of the largest listed renewable exposure as these often exist within the large diversified oil majors
- Identifying the requirement for the development of a new intermediary to scale up renewables in partnership between the renewable sector and investor
During the Paris Climate Summit, Low Carbon hosted a series of roundtables attended by leading finance and energy sector stakeholders. Three areas came to the fore from these interactive discussions:
- Analysis is needed of the issues driving the shortage of climate finance is needed despite the fact that many investors have found attractive climate investment solutions with strong returns. Increased investment flows are required throughout the investment stages of development, construction and ownership (the final stage of who are the long term owners a current constraint). It needs to be highlighted that renewable infrastructure provides liability matching, cashflow positive returns.
- Barriers such as government policy risk, the perception that there is a lack of investment opportunities, investor conservatism and the lack of suitable investment mechanisms must be addressed if climate finance is to increase
- Solutions including the creation of a new asset class using terms such as “secure inflation-linked income assets” and avoiding the negative connotations of the words like “Green” or “Energy”. The sector agrees that there is a market opportunity to create a new investment platform offering aggregation and low cost, long term, efficient investments in renewable energy opportunities at scale.
With the strong Paris Agreement achieved at COP21 and the clear message sent that renewables are material, profitable and here to stay, we very much expect an increased flow of finance into renewable energy infrastructure in 2016.
With the Paris Climate Change Summit (COP21) now underway, decisive action looks closer than ever. In the final preceding weeks leading to the conference, there has been a major shift in mind sets and rhetoric.
Action on climate change is no longer viewed as an aspiration; governments have recognised that they must act, and they must act quickly. This move towards ‘walking the walk’ on climate change is perhaps best exemplified by the 150 nations applauded by Europe’s climate change chief, Miguel Arias Canete recently for making positive progress towards a global deal on CO2.
This is significant progress, strongly implying that the fight against climate change is no longer an elusive ‘hope’, or a fight simply for ‘tree huggers’ or climate change activists amongst us. Rather, politicians, businesses and the investor community are throwing their hats into the ‘ring’ to help work towards a global deal that can ultimately help create a cleaner planet.
In the UK, action is underway to address the nation’s status as Europe’s third-biggest coal polluter and to meet the EU 2020 targets on renewable energy. As part of this on going effort to reduce the UK’s carbon emissions and move to a cleaner, low carbon economy, Amber Rudd MP recently made a bold call to action – the last coal plant in the UK must close by 2025
Rudd called on the government to refrain from funding ageing, carbon-intensive legacy energy infrastructure in favour of investment in alternative energy sources. With just five years to comply with the EU’s targets and a decade to prepare for a shortfall in energy production brought about by the closure of coal-fired power plants, it’s clear that the Government must take decisive action to readdress the UK’s energy mix, with investment in renewable energy sources, a logical choice. However, to secure the large scale investment needed in the private sector, steps must be taken to make this more attractive.
Furthermore, ‘peer pressure’ also has a role to play. With several high-profile political figures pledging that the UK should move away from the most carbon-intensive of fossil fuels – the institutional investor community cannot help but listen up. Many economists are taking Rudd’s pledges one step further, with leading economist Thomas Piketty calling for investors to move their money from fossil fuels, as public wellbeing is at risk from continued investment in coal, oil and gas.
Aside from appealing to the ‘heart’, Piketty’s argument holds up financially as well. Reallocating capital into climate change solutions such as solar parks or onshore wind farms delivers inflation-linked, stable returns. As Shell recently discovered from its Artic drilling ventures, you may drill for oil but you won’t always find it. On the other hand, renewable energy is based on proven technologies that generate electricity all year round. There are tangible financial returns to be had here.
Reaching a global deal on climate change at COP21 is imperative. Businesses, investors and governments from all nation states must learn from one another, and work together to create a positive and stable investment climate for those looking to make long-term and large-scale investments in renewable energy production. By agreeing a global plan at COP21, we can address climate change while securing, clean and reliable energy production for the future.
Helene Winch, investment strategist at Low Carbon, on the UK’s diminishing reliance on coal and the need for alternative means of electricity production
The UK’s energy market is rapidly changing. As we become less reliant on coal, we must look to alternative means to produce electricity, or face a shortfall in capacity within the next 10 years.
Coal-burning power stations have been closing at a rate of approx. 5GW per year. In 2016, the Longannet, Ferrybridge and Eggborough plants are due to close, reducing capacity to 12GW by the end of Q1.
As new EU pollution regulations come into force in 2016, generators face making a choice between installing costly and unproven carbon-capture equipment, or accepting limited generating hours.
Amber Rudd has committed that by 2025 all of the UK’s remaining coal-fired sites will close – just as the Government’s planned new Nuclear Power Stations are due to come on line. As a result, the UK faces a growing shortfall in capacity, which is further compounded by increasing levels of electricity consumption as transport and heating is decarbonised via electrification.
Renewable energy production can fill this shortfall, and amidst uncertain UK generation capacity, it’s clear that there is an ongoing role and need for renewable energy for the foreseeable future.
What’s more, developments in energy storage hold the potential to change the status of proposed renewable power generation from cyclical (led by daily irradiation) to a base load core provider, capable of aligning output with market demand requirements.
However, the government’s dismissal of support for onshore renewable energy generation, means that much-needed investment in new sites is being curtailed. Aside from reducing future capacity, this is potentially threating the UK’s ability to meet the EU 2020 targets on renewable energy.
With the clock ticking, the government must take decisive action. As Europe’s third-biggest coal polluter, closing coal-fired power plants is to be applauded. However, we cannot afford to wait until the new Nuclear Power Stations come on line, to meet the anticipated shortfall. The government must take steps to encourage greater long-term, large scale investment in renewable energy production across the UK today.
Quentin Scott, Marketing Director at Low Carbon, on the state of play in the renewable energy market for 2015
2015 has certainly been an important year so far for renewable energy, both in the UK and globally. In July, Germany broke a record for wind energy production whilst the UK recorded unseen levels of solar generation in the same month. Despite various subsidy cuts and political shifting from governments across Europe, the industry continues to power forward with new innovations. Instead of being overwhelmed by uncertainty, we continue to observe huge strides being made in the global fight against climate change.
In February of this year, it was confirmed that the UK is on track to meet its 2020 clean energy and climate change goals, whilst countries such as Iceland and Costa Rica now run entirely on clean power sources. There is a long-way to go for countries across the globe to reach a zero-carbon state, but with high-profile individuals such as Bill Gates openly rallying the global population against fossil fuel investment and towards renewable energy re-investment, the benefits of renewable energy are certainly out there for consumers, institutional investors and governments, to see.
It’s been an pivotal year for technological innovation as well. Wavy solar panels, micro-turbine wind ‘trees’ and the flight of the Solar Impulse plane have all been prevalent on the media agenda. This has raised awareness as to the technological possibilities that can propel the renewable energy industry into the high-tech age.
Here at Low Carbon, we are determined to work on innovative projects such as powering Land Rover BAR’s new headquarters in Portsmouth, and working with Plan Bee to install hives on our solar parks to help save the UK’s declining honeybee population. We are always trying to push the boundaries of what we can achieve on our sites in order to maximise efficiency, raise awareness and generate clean energy for local communities.
With only two weeks to go until the United Nations Climate Change Conference in Paris (COP21), we hope to see developments made to benefit the renewable energy industry. More specifically, we hope to see world leaders and global governments reach an agreement that transforms both the political and investor landscapes, in order to drive change. And this result is more than welcome here in the UK, with recent figures showing that 4 out of 5 Britons support renewables as a power source. Here’s to progress, and to the continued and necessary fight against the negative effects of climate change.
Nigel Labram, investment strategist at Low Carbon, on how the movement towards divestment and sustainable investment is changing the renewable energy investor landscape
Millennials today form the most pension-savvy generation to date. As a demographic that cares for and campaigns for climate change more than ever before, the power that this young age group has to influence change, should not be underestimated. They demand corporate responsibility and transparency from organisations like multinational banks and corporations. They also demand to know exactly where their money is and what it is invested in.
Climate change campaigners and leading economists such as Lord Stern, a respected professor from London School of Economics, are urging children and young people to pester their parents and older relatives into ensuring that their pension is built on renewable and sustainable sources. This emotional influence is proving extremely powerful, especially coupled with the high-profile campaigns and protests being staged in a range of industries to pressure companies to divest from fossil fuels.
With climate change education and the importance of initiatives such as ‘Reduce, Reuse, Recycle’ starting to become common practice in many schools, children are starting to grow up with a knowledge of sustainable and ‘green’ behaviour as a second nature. They can see the benefits of reducing their carbon footprints, and the consequences they will have to face if people continue to act unsustainably. The more children learn, the more power they have to teach their parents, who in turn have the power to ensure their pension is invested responsibly.
But it’s not just about the millennials: as our population ages, future pensioners have become increasingly aware that the choices they make with their money now, will directly affect their children, grandchildren and great grandchildren in the future. As we move towards a greener and carbon-free world, investments in the depleting stores of fossil fuels are looking less attractive and, ironically, sustainable.
The younger generations are those which will have to create, maintain and live in a low carbon economy, so therefore we should listen up to what they have to say. The education system should provide the foundation for a bottom-up drive for change that filters right up to retired pensioners and large corporations. This kind of ‘pension pester power’ can help in mitigating the negative effects of climate change and in achieving the end goal of a healthier planet.