UK investors debate how to fund the energy transition amid a cost-of-living crisis
Investors are divided on how to tackle the UK’s energy transition, and the role of policy makers in leading the net zero agenda
Was the UK government right to slow down its net zero ambitions? Is there a need to win over the broader public? And how does this impact the investment case for renewable energy assets?
These were some of the questions being raised during a frank debate at the Responsible Asset Owner’s Europe 2023 panel featuring Brunel and Brightwell chair Denise Le Gal, Brightwell CEO Morten Nilsson, Gus Wiseman, head of Investor Relations at the UK Government’s Department for Business and Trade, Jamie Broderick, deputy chair of the Impact Investing Institute and Martina MacPherson, head of ESG Product Strategy & Management at SIX.
External challenges
Speaking on behalf of the UK government, Wiseman acknowledged that policy makers had to: “slightly change tack”, due to external factors. “We are looking at what the US is doing with its inflation reduction act and at subsidies in the EU and China, if we want to be competitive in that context, we have got to change the rules by which we operate. There is going to be a high degree of regulatory exposure and a high degree of state support.
Acknowledging the scale of the challenge for the UK, he said: “It is really hard right now because we are being asked a lot of things that are not in our toolkit right now. But being asked for them helps us figure out what we need in our toolkit. Whether it is more subsidies, more control, more clarity over long-term revenue models or raising the strike price for offshore wind, we know we are not the only country in this situation, we have seen undersubscriptions for offshore wind in various other countries, these things are happening across the piece and we are doing our best” he said.
But Le Gal challenged him on that, asking how the UK government could get ahead of the game, rather than simply going for: “the lowest common denominator.”
Offshore wind consolidation
Faced with pushback, Wiseman hinted that greater consolidation of wind ports could be one option to become more competitive. “The UK is blessed with four main wind ports but our main competitor countries, Denmark, The Netherlands and Belgium each have one wind port and a significant amount of state and municipal support and ownership, they are able to build heavy duty infrastructure, we can’t do that unless we pick a winner. That would be a great change in UK government policy but I don’t think we’re in that space yet but we are conscious that this is part of the decision making process.
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Broderick stressed that the key to making the UK energy sector more competitive was blended finance, but more progress could be made: “I am not sure governments, local authorities and institutional capital are talking enough to each other at this stage. The notion that private markets can just make solar happen is just silly, the government has to be a key component to this, even if it fades off over time” he said.
Winning people over
The debate revealed disagreement among UK asset owners on the impact of the UK government’s U turn on net zero.
Nilsson showed a degree of sympathy, arguing that the U turn was based on real economic challenges: “The war in the Ukraine and now the Middle East and the Pandemic, if your ESG policies are not well thought through, you risk being caught in geopolitical drama” he warned.
Key to the energy transition was to win over the hearts and minds of the broader public, both for investors and for policy makers: “We can’t do much if we lose the support from our members, there has been a lot of criticism of the UK government changing its policies. But they did it because they thought voters would support that change and that they had lost the support of voters in the energy transition. I think we are totally underestimating that. We think that is an emerging market thing, but this is a UK problem too. A lot of people have barely enough money to pay their bills, if they think the energy transition is going to cost them more, how can they support that?”
Le Gal acknowledged the scale of the cost of living crisis by stating that she had never seen living standards being this tough in her lifetime. But she also warned that there was now a risk of inertia: “leadership is about making decisions and taking people with you. How you do that has to be explained but you won’t necessarily get everyone on board right away” she warned.
Brunel has invested among others in a greenhouse in East Anglia which uses water from sewage treatment plants to heat the greenhouses which in turn produce 10% of all tomatoes, cucumbers and green peppers grown in the UK, Le Gal said.
The pool is keen to pursue more such opportunities but it is lacking opportunity in the UK: “It is much easier to find projects elsewhere, in the US for example where senators welcome you with incentives. Unfortunately, at this point in time it doesn’t feel that there are a lot of carrots in the UK” Le Gal said.
