Sowing Green Seeds

Renewables Investment Promises Stable Growth

By Namrata Nadkarni

The economic impact of Covid-19 is being felt in countries across the globe with many, including the UK, the U.S. and Thailand, announcing a recession in August.

As governments outline various methods to kickstart their economies, a number of experts have postulated that investing in green and renewable technologies presents the ideal means, not only to tackle climate change, but also to generate jobs in this and supporting sectors. It will also bring about sustainable and long-lasting change to the economy.

“Going forward, it’s important that countries and governments invest in infrastructure to keep their wheels going after Covid-19, as it has been a tremendous hit all around the world,” explained Wenche Nistad, CEO of Norwegian export credit guarantee agency GIEK, which has been steadily financing green technologies for more than a decade as part of its mandate to promote the country’s exports and investments by providing long-term guarantees on behalf of the Norwegian state.

“We have to continue to develop renewable technologies and reduce the costs – we shouldn’t slow down, rather we should increase investments as the world is running out of time to change the energy mix. We have to hurry,” she said, noting that Norway’s long-term expertise in these niches has meant that GIEK has funded numerous projects to export renewable technology and expertise across the globe.

While many of these projects have tended to be located in Europe, which led the charge into solar, wind and tidal energy generation, many other countries have thrown their hat in the ring.

There has been a surge in global interest in renewables, explains Terje Borkenhagen, CEO of Norsea Wind, which provides operations and maintenance integrated services for wind turbines and high-voltage, direct current, or HVDC, platforms that includes spares as well as marine support. “In addition to further development in Europe – UK, Germany, Netherlands etc. – political signals are signaling increased focus on offshore wind development in China, Taiwan, Korea, Japan, Australia. The U.S. is also launching new initiatives,” Borkenhagen said.

Attractive Investment

DNV GL Director and renewables energy expert Michael Dodd believes that falling prices and the proven pedigree for renewable technology are also major drivers that, combined with a greener outlook, will spur continued investment in large-scale global projects.

“Renewables tech is now classed as mature technology, as it has been growing to scale over the last 20 years in Europe,” Dodd explained. And although the government subsidies that mitigated merchant risk in the early years and spurred infrastructure development have slowed to a trickle, he said renewable power energy generation in Europe is now comparable in pricing to traditional on shore power generation. By comparison, newer markets are still seeking ways to incentivize decarbonization and thus offer substantial subsidies.

“We are already seeing Asia, particularly China, overtake Europe for onshore renewables in terms of wattage generated,” he said, adding that even the U.S. has displayed a sharp increase in generated renewable energy, in spite of the current political turmoil.

There had been concerns that investment for these technologies would dry up as economies contract, particularly since the closure of manufacturing and other energy intensive sectors has eroded global electricity demand over the past year – and there is uncertainty about how soon previous consumption levels will resume. However, Dodd pointed out that as renewables are still subsidized to an extent, and in some cases are eligible for tax incentives, there is still some shielding of investment price and so these sectors are still viewed as attractive to investors.

Furthermore, the long lead time for these projects will mean that many of the projects that will require heavy-lift and breakbulk services are already financed and have been through several rounds of approvals prior to the pandemic.

“We have not seen any notable delays to any renewables projects so far – for us, it’s business as usual,” Nistad said. The agency is actively looking for new green projects in Norwegian businesses. “I am expecting an increase in projects in the next two to three years.”

GIEK is not the only party seeking to increase its exposure to green technology. Dodd pointed out that some large investment funds have viewed Covid-19 as an opportunity to pick up a bargain by buying into projects that have seen their value eroded by the pandemic. “There is such a quantity of capital and willingness for capital to flow, there has been a relatively insulated effect from Covid-19,” he explained. “There has been a small slow down, but not a closing off of the market – and recent reports are that the slowdown is starting to ease.”

Steady Finance Growth

With most traditional sources of European finance – such as pension and investment funds, utility providers including EDF and Ørsted, and energy companies like BP and Shell – already counting renewables as part of their portfolios, Dodd believed that the financial foundations are already in place for steady growth.

“As decarbonization comes up the government agenda, most big players are moving away from fossil fuels towards greener and cleaner investments,” he said, citing Black Rock and Macquarie as high-profile examples of investors leading this trend.

He anticipates this growth to continue at a steady pace over the coming years, in line with the upward curve in renewable energy production that DNV GL has been mapping over the last decade. Although the pandemic may slow the pace of uptake, the expert is still predicting an acceleration in green projects in the next two to three years, both in mature markets like the North Sea and in new markets like Asia. The group’s Energy Transition Outlook 2019 predicted that “a wide range of policy objectives – such as climate goals, air quality, health, job creation, energy security – will drive changes in the energy mix” leading renewables to take on the lion’s share of household energy supply.

“By 2050, we predict that 80 percent of household demand globally will be serviced by renewables including solar, hydro and even a small amount of biomass. We anticipate about 36,000 terawatt hours of energy generated from solar and wind, which is 20 times more than today,” Dodd said.

As a result of the UK’s ambition to achieve zero greenhouse gas emissions by 2050, the country is likely to continue as a trailblazer when it comes to green energy infrastructure projects. The latest UK Oil and Gas Authority’s Energy Integration Report, published in early August, shows that renewables – including hydrogen – will play a vital role in the country’s energy mix.

“The current offshore windfarms project pipeline accounts for over 20 GW of additional capacity therefore trebling existing wind power,” a spokesperson said. “Ambitions of wind power growth are as high as 75 GW by 2050 to support net zero. This level of growth would require greater coordination between wind power and oil and gas sectors, as there will be much more overlap as well as infrastructure sharing opportunities. We see the two sectors already discussing early opportunities in the Central North Sea.”

Infrastructure Transport Needs

As renewables play a larger role in total wattage produced, not only will new projects come into play, but existing infrastructure will need to be replaced. Breakbulk and heavy-lift operators can expect to transport larger turbine blades, heavy battery storage units and more.

“We are seeing bigger wind farms, but we are also seeing more energy generated per turbine,” said Asbjørn Halsebakke, a general manager for Finnish technology company The Switch. Achieving this power boost will require larger equipment. “We are going bigger in size: bigger turbines for more power. We can see that the development of the blade technology is being pushed, so we as generator makers are also being pushed to become more efficient and provide more power to the grid.

“Items are getting heavier and, in some cases, they are getting a bit larger – so this may mean more for the heavy-lift and breakbulk sector,” he predicted. The Switch has already had to invest in a bigger crane for its factory to lift its heavier generators. He believed that the UK and Denmark are likely to see infrastructure upgrades to wind farms in the near future, making these hot spots for European breakbulk and heavy-lift players.

However, in a salutary warning, Dodd, who highlighted Australia and China as locations that are making notable infrastructural investments, warned against expecting long-distance transportation contracts.

“To scale up the offshore wind market, you need local manufacturing as this reduces supply chain costs,” he said. “Some components will certainly need to be imported or exported – that will always happen – but as we have already seen, the more mature markets in Europe have domestic production facilities that are used in that supply chain.” Accordingly, he anticipates that expertise in setting up and scaling renewable projects is the commodity that will be most exported.  

Namrata Nadkarni is a London-based freelance journalist with 17 years of experience covering maritime, offshore, ports and the logistics sector.

Image credit: DNV GL