Wind is growing – but that can’t mask the sector’s challenges

Is the debate about renewables over? Wind and solar are both on track for serious growth in the next decade, and we see little argument in the energy world that both can play important roles in helping the world to hit ambitious decarbonisation goals.

Richard Heap
April 8, 2019
Wind is growing – but that can’t mask the sector’s challenges

Is the debate about renewables over? Wind and solar are both on track for serious growth in the next decade, and we see little argument in the energy world that both can play important roles in helping the world to hit ambitious decarbonisation goals.

This feeling was been reinforced by two events that we paid attention to last month.

First, IHS Markit’s CERA Week conference in the US, where there was little debate among the oil executives present about the validity of climate change science or the need to decarbonise the energy system. It doesn’t mean they all like or even support renewables, but more accept that wind will be important in the world’s energy future.

And second, at Aurora Energy Research’s spring forum, the high-level debate didn’t focus on the potential for growth in wind and solar. That was a given. It instead focused on other issues including how to decarbonise heating and transport; how to address Asian emissions; distributed generation; and the role of cities in this.

We see the lack of focus on wind as broadly a good thing for investors in this sector. It suggests that the support for wind in unarguable at the top level of the businesses – utilities, institutional investors and others – that will be key in the energy transition.

For example, Centrica chief executive Ian Conn told attendees at the Aurora event that wind and solar costs had fallen 30% and 80% respectively over the last decade, which has led to a doubling of installed renewables globally from 2000 to 2016: “The contribution of cheaper clean energy and government action is already taking effect.”

Joao Manso Neto, chief executive at EDP Renovaveis, also sounded a positive note for the period until 2030. He said: “Everybody in this moment is fond of renewables, which was different to what was happening four or five years ago… [and] the prices of renewables, everybody understands, are very competitive."

However, he added that this growth until 2030 is not assured. First, because it relies on companies having the business models they need to thrive which, to Neto, means not being exposed to just one part of the renewable energy sector: “If you want to be a renewables player, you have to be able to play in all renewables,” he said.

Whether you agree with him may well vary based on whether you work for a firm that is a wind specialist, or is taking a wider view on other technologies including storage, solar and beyond. But we do see the logic in not being only wedded to wind as it can help firms to spread their risk. More manufacturers and investors are going that way.

And second, because there are risks that companies in the wind sector need to cope with, including issues caused by price cannibalisation (“Renewables are something that kills itself”); the need for a faster rollout of private power purchase agreements; the environmental impacts of wind; and the need for long-term clarity from regulators about support for renewables. They all pose threats to the expansion of wind and the lack of debate about the sector at events such as these shouldn’t hide these threats.

The wind industry is growing, and so establishing growth in this industry is certainly a less pressing issue for energy chief executives than how to decarbonise heating, for example. But ensuring that the wind sector can help companies and countries to hit their 2030 climate goals will be vital if they are to push on and hit targets for 2050.

As Neto said: “If you don’t have a business model that enables the development of renewables up until 2030, those goals will be compromised… If you want to win the future, you have to win the near future and the present.”

It’s up to companies investing in this sector to win that first battle.

Is the debate about renewables over? Wind and solar are both on track for serious growth in the next decade, and we see little argument in the energy world that both can play important roles in helping the world to hit ambitious decarbonisation goals.

This feeling was been reinforced by two events that we paid attention to last month.

First, IHS Markit’s CERA Week conference in the US, where there was little debate among the oil executives present about the validity of climate change science or the need to decarbonise the energy system. It doesn’t mean they all like or even support renewables, but more accept that wind will be important in the world’s energy future.

And second, at Aurora Energy Research’s spring forum, the high-level debate didn’t focus on the potential for growth in wind and solar. That was a given. It instead focused on other issues including how to decarbonise heating and transport; how to address Asian emissions; distributed generation; and the role of cities in this.

We see the lack of focus on wind as broadly a good thing for investors in this sector. It suggests that the support for wind in unarguable at the top level of the businesses – utilities, institutional investors and others – that will be key in the energy transition.

For example, Centrica chief executive Ian Conn told attendees at the Aurora event that wind and solar costs had fallen 30% and 80% respectively over the last decade, which has led to a doubling of installed renewables globally from 2000 to 2016: “The contribution of cheaper clean energy and government action is already taking effect.”

Joao Manso Neto, chief executive at EDP Renovaveis, also sounded a positive note for the period until 2030. He said: “Everybody in this moment is fond of renewables, which was different to what was happening four or five years ago… [and] the prices of renewables, everybody understands, are very competitive."

However, he added that this growth until 2030 is not assured. First, because it relies on companies having the business models they need to thrive which, to Neto, means not being exposed to just one part of the renewable energy sector: “If you want to be a renewables player, you have to be able to play in all renewables,” he said.

Whether you agree with him may well vary based on whether you work for a firm that is a wind specialist, or is taking a wider view on other technologies including storage, solar and beyond. But we do see the logic in not being only wedded to wind as it can help firms to spread their risk. More manufacturers and investors are going that way.

And second, because there are risks that companies in the wind sector need to cope with, including issues caused by price cannibalisation (“Renewables are something that kills itself”); the need for a faster rollout of private power purchase agreements; the environmental impacts of wind; and the need for long-term clarity from regulators about support for renewables. They all pose threats to the expansion of wind and the lack of debate about the sector at events such as these shouldn’t hide these threats.

The wind industry is growing, and so establishing growth in this industry is certainly a less pressing issue for energy chief executives than how to decarbonise heating, for example. But ensuring that the wind sector can help companies and countries to hit their 2030 climate goals will be vital if they are to push on and hit targets for 2050.

As Neto said: “If you don’t have a business model that enables the development of renewables up until 2030, those goals will be compromised… If you want to win the future, you have to win the near future and the present.”

It’s up to companies investing in this sector to win that first battle.

Is the debate about renewables over? Wind and solar are both on track for serious growth in the next decade, and we see little argument in the energy world that both can play important roles in helping the world to hit ambitious decarbonisation goals.

This feeling was been reinforced by two events that we paid attention to last month.

First, IHS Markit’s CERA Week conference in the US, where there was little debate among the oil executives present about the validity of climate change science or the need to decarbonise the energy system. It doesn’t mean they all like or even support renewables, but more accept that wind will be important in the world’s energy future.

And second, at Aurora Energy Research’s spring forum, the high-level debate didn’t focus on the potential for growth in wind and solar. That was a given. It instead focused on other issues including how to decarbonise heating and transport; how to address Asian emissions; distributed generation; and the role of cities in this.

We see the lack of focus on wind as broadly a good thing for investors in this sector. It suggests that the support for wind in unarguable at the top level of the businesses – utilities, institutional investors and others – that will be key in the energy transition.

For example, Centrica chief executive Ian Conn told attendees at the Aurora event that wind and solar costs had fallen 30% and 80% respectively over the last decade, which has led to a doubling of installed renewables globally from 2000 to 2016: “The contribution of cheaper clean energy and government action is already taking effect.”

Joao Manso Neto, chief executive at EDP Renovaveis, also sounded a positive note for the period until 2030. He said: “Everybody in this moment is fond of renewables, which was different to what was happening four or five years ago… [and] the prices of renewables, everybody understands, are very competitive."

However, he added that this growth until 2030 is not assured. First, because it relies on companies having the business models they need to thrive which, to Neto, means not being exposed to just one part of the renewable energy sector: “If you want to be a renewables player, you have to be able to play in all renewables,” he said.

Whether you agree with him may well vary based on whether you work for a firm that is a wind specialist, or is taking a wider view on other technologies including storage, solar and beyond. But we do see the logic in not being only wedded to wind as it can help firms to spread their risk. More manufacturers and investors are going that way.

And second, because there are risks that companies in the wind sector need to cope with, including issues caused by price cannibalisation (“Renewables are something that kills itself”); the need for a faster rollout of private power purchase agreements; the environmental impacts of wind; and the need for long-term clarity from regulators about support for renewables. They all pose threats to the expansion of wind and the lack of debate about the sector at events such as these shouldn’t hide these threats.

The wind industry is growing, and so establishing growth in this industry is certainly a less pressing issue for energy chief executives than how to decarbonise heating, for example. But ensuring that the wind sector can help companies and countries to hit their 2030 climate goals will be vital if they are to push on and hit targets for 2050.

As Neto said: “If you don’t have a business model that enables the development of renewables up until 2030, those goals will be compromised… If you want to win the future, you have to win the near future and the present.”

It’s up to companies investing in this sector to win that first battle.

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