Investing In Infrastructure To Solve Societal Challenges
4 November 21
4 November 21
"As we await the outcome of COP26 to achieve tangible solutions for the transition to net zero, one of the most significant levers needs grasping with both hands: energy efficiency. The world is looking for clear commitments from governments, institutions, and industry leaders to accelerate the change to a climate-friendly approach to how we live. Energy efficiency – the use of more efficient technologies or processes to reduce the amount of energy used – should be the cornerstone priority for all governments and it is the largest, cheapest, safest, and fastest-to-deploy energy option."
Miles Alexander is an Investment Director for Triple Point’s Energy Team. In this article, Miles explores the growing need and opportunity of investing in energy efficiency infrastructure assets.
More than half the energy we produce is wasted through transmission, distribution or inefficiency at the point of use. Of the 29m existing homes across the UK, at least 19m still need to be made climate resilient. That means turning them low-carbon and low-energy.
Domestic properties account for 30% of the UK’s energy use and around 19% of greenhouse gas emissions, according to the Department for Business, Energy and Industrial Strategy. COP26 is a great springboard for raising the importance of energy efficiency to combat climate change.
There are several drivers that promote investment into energy efficiency. These include policy, energy costs, organisations looking to improve resilience, carbon reduction targets and commitments, increasing electrification, falling costs of distributed energy and energy efficiency technology, increased acceptance of ‘as a service’ models, the need to upgrade infrastructure and increasing recognition of the value of non-energy benefits.
These problems present huge and growing opportunities to invest in energy-efficient projects. Energy-efficient projects offer predictable, long-term cash flows from strong counterparties and using tried and tested technologies.
In the 2020 UK summer budget, £3bn was made available for energy efficiency in buildings – £2bn through a system of grants to cover up to two thirds of the cost of energy efficiency measures up to £5,000 and £1bn to improve efficiency and introduce low carbon heating into schools, hospitals, prisons, military establishments and other public buildings. There was also £50m for pilot projects in social housing. The autumn budget recently announced further measures to support energy efficiency and low-carbon energy, supported by the National Infrastructure Strategy, which sets out nearly £650bn of public and private investment.
The UK EPC (energy performance certificate) market is estimated at £700m-750m per annum and the virtual power plant market is estimated at £120m in 2019 and is forecast to grow to £370m in 2024.
Renewables are essential in the net-zero battle. However, we need a bigger toolkit than just renewables if we are to act fast.
Energy efficiency, along with wind and solar power, will provide half the emissions savings in the next decade in the International Energy Agency’s (IEA) roadmap for reaching net zero by 2050. “Without those efficiency gains, electricity demand growth would make it much harder for renewables to displace fossil fuels in electricity generation,” the IEA says.
It is important to have a stable long-term policy framework for energy efficiency, where grants are not switched on and off, sending mixed messages and delaying action to implement energy efficiency projects until the next announcement. Energy efficiency projects are not only good for sustainability, they are also good for profitability. Where Government could help is in assisting at the very early stage of a project’s development or supporting technologies when they are at the very early stage of implementation.
The energy efficiency market is experiencing greater and greater focus given its potential to deliver tangible near-term solutions to the climate challenge. It can be implemented across the country, in different sectors including those hard-to-abate areas such as buildings and industry. It also makes sense from an economic perspective.
The Sustainable Development Goals state that by 2030 we should achieve the sustainable management and efficient use of natural resources. The goals also state that by 2030, infrastructure should be upgraded and industries should be retrofitted to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes.
These goals present myriad investment opportunities, including batteries to prevent wasted energy as well as infrastructure projects. Energy efficiency offers an exciting way for investors to access the green recovery currently playing out across the economy.
In the quest for a low-carbon future, a focus on the mix of energy resources at our disposal will be key – but we must also ensure that we use these efficiently to achieve our climate goals. This will mean changing how we live and consuming fewer resources by using energy more efficiently.
With a clear commitment and plan, we need to engage with all levels of society to embrace the change, whether this is in cabinets, board rooms, assemblies or social environments.
Using less means changing how we buy products, changing what we choose to use as transport and transforming our attitude towards waste.
We have seen how quickly things changed in the last two years as we pulled together to fight Covid-19. Sharing how each of us can implement improvements for a more intelligent and sustainable use of scarce resources will help drive change. Governments need to incentivise this transition – quickly – and we all have to play our part and do our share. Yes, this could mean higher taxes in the short-term but in the long-term it will enable cost savings through more efficient use of resources.
Simply – we owe a debt to the planet, nature and future generations to change how we use the limited resources we have available. Energy efficiency is a key tool to make better use of our resources in the near-term and for the long-term. The opportunity has to be grabbed now.
Triple Point Energy Efficiency Infrastructure Company plc (TEEC) was launched in October 2020 with a green economy mark on the London Stock Exchange. TEEC is managed by Triple Point Investment Management LLP which is committed to improving the environment through saving energy through more efficient usage.
Triple Point is implementing these improvements for society through our five investment strategies of energy efficiency, digital infrastructure, social housing, venture financing as well as lending and leasing to the private and public sectors.
Miles Alexander is an Investment Director for Triple Point’s Energy Team.