UK renewables offer attractive returns for businesses and opportunities for innovative utilities
21 September 2011, Gas, Electricity, Nuclear, Solar, Wind
In the current climate of rising energy prices (the Department of Energy and Climate Change is predicting a 37% rise in energy prices between now and 2020), and given the array of regulatory support schemes available, the Carbon Trust estimates average returns of 11-12% for businesses investing in renewables in the UK. Examples of regulatory support schemes include (but are not limited to) the Renewable Heat Incentive, feed-in tariffs, avoided Climate Change Levy, and avoided landfill tax.
The benefits are not just lower prices, but more stable prices, while a decentralized supply of energy should also be more secure. Many companies appear to be sold on the concept; for example, Asda and Ikea want to obtain 100% of their energy from renewable sources. The Carbon Trust believes that anaerobic digestion, wind turbines, biomass heating systems, and ground source heat pumps are the most attractive options.
However, political agendas can be unstable, as shown by the surprise UK North Sea tax hike earlier this year. In terms of feed-in tariffs, it is important that companies act sooner rather than later, while the rates are known and guaranteed. It is also important that companies trial the technology before committing to it in order to mitigate against otherwise unforeseen problems, such as the reliability of the fuel source.
A greater move to decentralized supply can be seen by utilities as either an opportunity or a threat. However, it only becomes an opportunity if utilities adapt their business models. Moreover, it particularly presents an opportunity for new entrants, as decentralized supply is just as new to established companies as it is to new ones.
E.ON has done well to capitalize on this opportunity, and offers "the complete solution" for decentralized supply, from surveying and financing to building and servicing. An example of an innovative strategy has come from British Gas, which is advertising a combination of solar roof panels and charging points for electric vehicles. The company says that charging an electric vehicle with solar allows for 1,000 miles of driving for a cost of just GBP5.00.
It is innovative strategies such as this that will best position utilities for the long term. Moreover, a move to decentralized supply may not be too far in the future, as tremendous growth has been seen in the uptake of decentralized solutions in Germany and the Netherlands in the space of only a few years.
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