Matteo Quatraro, Head of Portfolio at Gravis, dives into the ambitious targets set out by the UK government for decarbonising the energy sector. With the goal of decarbonising electricity generation by 2035 and achieving net zero emissions by 2050, the wind energy sector is positioned to play a crucial role. The UK leads Europe in offshore wind installations, a pivotal factor in meeting these targets.
A guide to investing in UK windfarms
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What role will windfarms play in achieving the government’s plans for net zero?
The UK government has set up a very challenging target. The first one is 2035, totally decarbonise the energy generation in the country, and 2050, we need to reach the net zero emission target. Clearly, the wind sector will need to play an important role in achieving these targets. It’s important to underline that the UK is a windy country. The UK is the first in Europe in terms of offshore wind installations. It used to be the first, just overcome by China very recently. Clearly, the wind sector is key for the UK to reach the targets that we have set for the future.
How does government policy impact UK onshore wind?
One important step was done on the onshore wind sector, where the government lifted some restrictions on the onshore development in the future. Technically, there has been since 2015, a defacto block on the onshore. So this is very good news. It means that for the future, there is a good chance to increase from the 15 giga currently installed on the onshore side to grow for the future. There are still some important decisions to take from the government. The first is to put in place some very clear policies, especially for assets that are already into operation and they are reaching the 20-year lifetime deadline. It’s important to give the investors clarity on what is for the future. Usually, there are two options. One is a full repowering of the asset, which means to replace the existing turbines with new ones, more technologically advanced. But even though the asset is already there, there is a requirement from the local authorities to go through an entire planning permit that is costly and very long, which doesn’t give any motivation to investors to continue investing into the sector. It’s important from the government to give a strong message that they want to help investors to continue investing in this sector. On the other side, the main bottleneck is the grid infrastructure, the national grid infrastructure. It needs to be upgraded, needs to be enhanced to allow the new generation to be exported and to be generated into the grid. So far in the last decades, about £3 billion per year have been invested in the national grid. In order to reach the target of having more installations to reach the net zero in 2050, this needs to grow to £9 billion per year between 2030 and 2050. So it’s a consistent amount of money to be invested.
What needs to be done to encourage investment in the sector?
Right now, given all these challenges and given the UK government has estimated we need to go from 56GW renewable installation we have right now to 140, 170 gigabytes. They really need to give a strong message to the sector that they are in favour of renewable generation and they are helping investors to invest more and more in the coming years. Again, the government needs to set up some key decisions. One of these, especially on the offshore wind farm, which is the most promising one in UK, given the wind and given the North Sea is the perfect area for these installations. There are contract for differences that there are tenders every year to allow these assets to decide they are viable. There has been an issue last year when the strike price for the tender number 5 was not good enough for the offshore installations, and it was a complete failure because no offshore wind submitted any request for it. Now we have the new tender has been launched at the end of March, and hopefully the new strike price will reflect what the government has learned from the past experience, which means hopefully more offshore wind farms will be submitting their request for the tender, and many of the assets that are on the edge of the final decision, if to go ahead or not, with a very good price, they can finally decide to go ahead and start construction of the other.
What is the main problem for investor when deciding to develop a new wind farm at the moment?
A grid connection is one of the key points right now. There are wind farms, practically ready to build that do not have a grid connection secured. There is a long queue for that. That’s also not incentivising investment from abroad because, of course, you have no clarity on your investments and you need something more concrete from the government and from the grid operator in this regard.
Why is the wind sector so important?
The wind sector has been very important for UK in terms of job creation, especially in very rural locations, where these wind farms very often are in Scotland, where the wind is very strong and where communities do not have so many chances to find good jobs. Wind farms have been really helpful on that side, creating lots of jobs for the long term because the lifetime of a wind farm is 20, 25 years. This means to secure future for local communities.
How has Gravis been involved and invested in windfarms over the last decade?
Gravis, as investment adviser for GCP Infra, worked on several deals on behalf of the fund. We used the skills of the team that is part of Gravis to analyse and assess different operating assets in the UK. Through the different advisers, we could learn much more about the UK sector and invest in two different portfolios in the UK across three, four years of deals that we have assessed.
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