One of the most significant landmarks for the global renewable energy industry over the past six months was the signing of the historic Paris Climate Deal. A total of 174 countries plus the EU put pen to paper, pledging to take action to help mitigate the negative effects of climate change.
Now, more than ever, governments cannot help but take more decisive action to lay the groundwork for new legislation and policies that will engineer a more positive investment environment into renewable energy technologies such as solar photovoltaics (PV), wind and energy storage projects.
In the run-up to the Marrakesh COP22 conference in November this year, more can be done to ensure that the UK investment sector is fully engaged to join the fight against climate change, and to generate strong and impressive returns from renewable energy investments.
A key trend hitting headlines during the past six months has been the widespread ‘divestment’ movement. Major pension funds across the globe, such as Washington DC’s $6.4bn (£4.4bn) city government pension fund, have been openly divesting from fossil fuels in a bid to protect pensioners from their ever-increasing risk. Moreover, looking back to 2015, Norway’s $890bn government pension fund announced its pledge to sell off many of its investments relating to coal.
Divestment from fossil fuels and reinvestment into renewable energy is not just a good corporate social responsibility exercise. Investing in climate change solutions can generate strong, inflation-linked returns. As anticipation and expectation builds for the COP22 conference, the UK government, in collaboration with the energy and investment industries, can do more to educate the market on the resilient and low-risk returns that are to be had from climate change solutions – particularly renewable energy projects.
Not a day seems to have gone by since the start of 2016 without oil’s unpredictable price moves hitting the headlines Louise Ward, Low CarbonIf all 174 countries involved in the signing of the Paris Climate Change agreement truly want to move to a low-carbon economy, increased levels of investment into low-carbon assets will be essential.
Not a day seems to have gone by since the start of 2016 without oil’s unpredictable price moves hitting the headlines. One moment, investors will read reports such as recent news that Brent oil prices have fallen for a fourth consecutive session due to a strong US dollar. The next, they will read that oil prices have hit a six-month high. One thing is for certain – investors in the UK might be forgiven for not knowing how to navigate their way through the patchwork of differing reports, global uncertainty and highly volatile prices in today’s market. This is where renewables may present themselves as an attractive alternative.
Renewable energy technologies have a proven, strong track record of improving the UK’s overall energy mix while generating its electricity needs. Onshore wind, for example, is 20 years old and was recently described by the Department of Energy and Climate Change as “the leading individual technology for the generation of electricity from renewable sources in 2014”. These are proven, credible energy sources.
Finally, investment into climate change solutions can stand up to financial scrutiny. They are typically long term and inflation-linked. Most climate change solutions are infrastructure projects and are often incorrectly categorised as part of the private equity industry.
Mercer, a global investment consultancy firm, recently conducted a study into the characteristics of future investors and how many will take on a climate-aware role. These investors will realise the potential of renewable energy to shape our future and that major financial markets will cease to be dominated by the giants of the oil and fossil fuel industries. Moreover, these investors will be more likely to be influenced by investment decisions they make at home: for example, those who can see the benefits of solar PV on their roof, may also see potential in solar PV projects at scale.
‘Future-maker’ investors are on the rise in France, with the government recently calling on institutional investors to disclose the carbon intensity of their investment portfolios. This level of engagement and awareness could be generated in the UK ahead of the COP22 conference.
With the historic Paris agreement signed and the COP22 conference ahead of us, the next six months are certainly brimming with anticipation and promise for renewable energy. However, the lead-up will also be pivotal in educating the financial markets on the strong part they have to play in the fight against climate change, and in engineering the low carbon economy of the future.
Louise Ward is investment strategist at Low Carbon
