FINANCING POWER
After a challenging few years where securing funds for new energy projects has been tough, UK energy investors and suppliers are now seeing a major turnaround. Compared to last year, 59% reported better financing conditions, with 24% noting significant improvements.
In this context, 76% had invested in new energy projects, driven by the ability to more easily access finance (51%) but also the promise of good rates of return (51%) and their need to increase ESG investments (50%).
What type of energy is being invested in?
As with the global picture, the improved financing landscape in the UK has led to investments being fairly evenly split across energy sources in the last year with green hydrogen (49%), wind (48%) and carbon capture (48%) as the main beneficiaries. Looking ahead, suppliers and investors expect to see a similarly broad range of sources in their energy mix with solar (51%), green hydrogen (46%) and heat networks (43%) cited as the most popular for the coming years.
Funding green hydrogen
Richard Cockburn, Partner, Womble Bond Dickinson, comments: “The repeated interest around green hydrogen in our survey is particularly interesting. It’s become clear that delivering this new technology is trickier than many had expected. The need for a big anchor customer, as well as access to the grid and certainty on the costs of input power, has made it an expensive option to get off the ground.
“This was confirmed in our survey with UK suppliers and investors citing cost of production as their primary concern in the development of hydrogen between now and 2050. Indeed, this is likely to be a key factor in the demand for increased financial support. Respondents to the survey also told us that hydrogen is the area where they think the development of commercial contract frameworks needs to be prioritised.
“As for other more mature energy sources, wind power featured less prominently in the list of future priorities than previously.
"However, it’s worth noting that the new UK government’s day-one decision to scrap the previous administration’s defacto ban in England on new onshore windfarms should see onshore wind move up the list.”
Charlie Reid, Partner, Womble Bond Dickinson, adds: “While we’re likely to see improved financing conditions benefit more established – and therefore, less risky – energy projects, such as onshore wind, Great British Energy will have an important role to play in financing more emerging projects such as green hydrogen.
“Some critics have questioned the merits of Great British Energy putting public money at risk, via the UK Infrastructure Bank, by backing new technology. But that’s exactly what will be needed to really kick-start these projects and subsequently attract the private investment that can put the UK at the forefront of cutting-edge energy transition.”
Commercial consumers
While improving finance conditions for energy projects is encouraging news for the sector in the UK, the picture for commercial consumers is different with debt much less of a feature. Operating costs and economic impact – including the financial burden of financial assets – are ranked as the greatest challenge for UK commercial consumers, with over half (53%) saying it will impact global energy transition.
With this in mind, of those companies looking to fund decarbonisation, 68% expect to do so from their own operating income, with 45% hoping to take advantage of government support and incentives.
Intensive energy users don’t generally have the luxury of being able to attract the interest of energy investors to the same extent, whose attention tends to focus on what can be perceived to be ‘shinier’ generation and supply projects.
Yet, many of these are strong and well-established businesses with potential for substantial improvements in areas of productivity and sustainability, which could offer good returns.
It remains to be seen what role Great British Energy could take here and whether it will look at energy in its broadest sense. The opportunities to invest in and accelerate decarbonisation for these businesses are significant.
Share on social:
