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Renewable Generation

13 Feb 2019 / Insight

By Nigel Hawkins

Coming of Age

 

Executive summary

  • This Investment Research Paper addresses the issue of renewable power generation in the UK and in mainland Europe, which – after the deep-seated financial crisis of 2008/09 and the ensuing recession – now has better prospects of achieving critical mass. It also considers investment perspectives.
  • In recent years, there has been a major shift in favour of renewable generation. It has been led by wind generation, mainly on-shore but also increasingly off-shore. In the UK’s case, there has been a sea-change in operating costs, illustrated by the successful bids by three leading energy companies – EdP, Orsted and Engie – to build and operate North Sea wind farms.
  • Share prices of virtually all leading energy companies have slumped over the past decade, with EdF and the two German companies, E.On and RWE, being dire performers. The latter two companies have undertaken major restructuring in the light of the highly contentious decision by the German Government in 2011 to end nuclear power generation by 2022.
  • Nevertheless, some energy companies have prospered of late. Denmark’s long-established turbine manufacturer, Vestas, has seen a 20x rise in its share price since its nadir in November 2012. Also, in Denmark, the re-named Orsted, which focuses on renewable generation, has seen its shares rise by ca.25% since its IPO in late 2017.
  • In the UK, smaller renewable power investment funds, such as Bluefield Solar, TRIG and Next Energy Solar, have met investor expectations and have delivered a steadily rising dividend stream.
  • It is self-evident that wind-power generation is the key renewable source. Recent figures show EU wind capacity of 169 GW, a small percentage of which are off-shore wind plants.
  • Solar power is beginning to make a real impact, certainly in terms of capacity. EU PV-generated solar capacity has now reached 107 GW.
  • Marine-sourced generation projects struggle. The iconic Rance plant in Normandy – built in the 1960s – seems destined to stand alone, since no new large EU tidal schemes are close to fruition, while wave power technology is currently well short of achieving commercial viability.
  • Biomass continues to face major challenges. Despite the very expensive – and nearly complete – Drax conversion programme, new biomass projects are few, although some are being delivered, notably in Finland and Germany.
  • New hydro-power projects, too, are scarce, although a few, including SSE’s troubled 100 MW scheme at Glendoe, have been delivered in recent years.
  • Whilst geo-thermal energy thrives in Iceland, its impact elsewhere is very limited; it barely features in EU energy statistics. Similarly, generated power from fuel cells is also minimal.
  • In Germany, the Energiewende is underway in the electricity sector, with nuclear power generation ending by 2022 – a policy that has seen shares in E.On and RWE plunge. Such a scenario can only boost the renewables sector there, despite the financial collapse of some wind and solar developers.

 

Click here to read the full report