A more efficient (and less polluting) energy network for the future is a decentralised one, with energy generated at smaller-scale facilities, such as combined heat and power plants or smaller scale renewables, away from the main grid. Decentralised networks can serve individual buildings or whole cities, and will reduce inefficiencies associated with centralised networks, carbon emissions, and energy costs in the medium to long-term.
Example: District Heating Network
District heating plants provide higher efficiencies, lower costs, and better pollution control than localised boilers, reducing carbon emissions. Heat generation accounts for approximately a third of the UK’s carbon emissions. The UK government has established a £320m investment programme to help deliver more district heat networks alongside the private sector, which may introduce an additional £1bn of investment.
Transportation: The transport sector has the highest final energy consumption of all sectors and relies on fossil fuels, making it a major source of greenhouse gas emissions. In terms of efficiency, the opportunity comes from the lower cost (over time) of alternatives such as electric vehicles (EVs) vs. conventional petrol/diesel vehicles, where the cost of electric charge over 100 miles may be 75% cheaper than petrol. The electrification of transport using batteries (and hybrid solutions), alongside renewable energy generation technologies, is an option for rail and light-duty road transport (i.e. cars, buses, and smaller HGVs). A shift toward EVs requires considerable investment in networks of public charging points, an emerging an investible area within the energy efficiency infrastructure theme.
Notwithstanding tougher regulations from central policy-makers relating to energy efficiency requirements in buildings or emission reduction targets, corporate entities and local authorities are incentivised to undertake energy efficiency initiatives with cost savings and sustainability ambitions (an increasingly important aspect of corporate strategy). There is scope for the private sector to inject capital into projects that generate returns linked to the savings delivered to the end client or can simply be structured for the provision of long-term capital. Energy efficiency projects typically attract long-term, infrastructure-like cash flows and in the prevailing environment such opportunities are likely to be highly sought after.
The VT Gravis Clean Energy Income Fund has identified investable opportunities within the global energy efficiency sector, through publicly listed companies. These entities provide exposure to diversified portfolios of energy efficiency projects which typically attract long-dated, availability-based cash flows to the investor while providing cost and emissions benefits to counterparties.
William Argent, Director
Fund Adviser, VT Gravis Clean Energy Income Fund