AS big energy sector investors make clear how much money they expect to make in the renewables business the Government has to make sure taxpayers get a fair deal amid the expected transition to a lower carbon system.
With the dreadful events in Ukraine sending oil and gas prices soaring ever higher, households are facing the prospect of further swingeing increases in energy bills in addition to the one that will take effect next month.
The price cap will increase by £693 from £1,277 to £1,971 from April 1 following calls for the regulator, Ofgem, to help firms recover the cost of increases in the price of gas on wholesale markets last year, which look relatively modest compared with the latest spike.
While a host of energy suppliers have folded in recent months, Australian investment back Macquarie has underlined the appeal of a section of the market.
After investing in a range of windfarm ventures around the world through its London-based Green Investment Group (GIG) business, Macquarie said last week that it was launching what it expects to become one of the world’s largest specialised offshore wind developers.
The business, Corio Generation, will draw on the financing expertise offered by Macquarie and the operational experience it has amassed with partners to hunt for windfarm investment opportunities around the world.
READ MORE: Successful ScotWind bidder highlights appeal of windfarm market
Following its experience in the UK, Macquarie clearly expects to find plenty of these.
The announcement of the launch of Corio stated: “GIG played a pivotal role in the development of the UK’s offshore wind market – now the most mature market in the world – and with our parent company Macquarie, supporting over 50 per cent of the UK’s current offshore wind capacity.
“Over recent years GIG has used that experience to accelerate the deployment of offshore wind in new markets like Taiwan and Korea, building up a +15 GW global development pipeline which will now be taken forward by Corio.”
The announcement added: “Corio has been established at a time when the demand for green electricity continues to rise – with the total capacity of offshore wind farms expected to reach 228 GW in 2030.”
Macquarie bought GIG from the UK Government for £1.7bn in 2017.
The group highlighted its ambition to grow GIG and the returns it has generated in sectors such as renewable energy in an operational briefing issued in February, in which it said it had enjoyed a record performance in the quarter to December 31.
In the briefing, the group noted its key Macquarie Capital business had enjoyed “exceptionally strong investment realisations in infrastructure (including green energy)”.
Macquarie said it remains well-positioned to deliver superior performance in the medium term partly due to the strength of the Capital business, which benefits from “strong platforms and franchise positions”.
However, in a slide highlighting the scale of the global infrastructure opportunity Macquarie noted the importance of the policy support provided by governments around the world.
Macquarie was one of the winners in the landmark ScotWind leasing round, which attracted strong interest from energy firms and investors around the world.
READ MORE: Windfarm deals underline oil giants' interest in sector
The GIG business teamed up with French oil giant TotalEnergies to bid successfully for acreage off Orkney on which it expects to develop a big windfarm.
GIG’s offshore wind business also has a stake in the East Anglia One windfarm off England developed by ScottishPower.
The group bought a 40 per cent stake in East Anglia One from ScottishPower in 2019. The following year it sold a 14.3% interest in the development to The Renewables Infrastructure Group, which noted: “The Project benefits from an attractive Contract-for-Difference (“CfD”) subsidy for the next 15 years with inflation indexation.”
ScotWind projects are expected to benefit from CFD support.
However, a recent Scottish Government report underlined the challenges posed by the fact that wind power is weather-dependent.
In the Energy Statistics for Scotland report issued in December it noted that the amount of renewable energy generated in Scotland in the first three quarters of last year was down 22.3% on the same period of 2020 citing mild weather over the year.
READ MORE: Smart meter gravy train is rolling on amid energy crisis
Some might think that such a development combined with the latest surge in oil and gas prices provides a strong rationale for investment in North Sea hydrocarbon resources.
It also underlines the need to develop effective ways of storing renewable energy generated at times of low demand for use when required.
Last week Downing Fund Managers launched a vehicle that will invest in trusts active in areas such as renewable energy. It noted : “Increased reliance on renewable energy generation has brought the need for substantial battery storage capacity to the forefront”.
The company expects its Listed Infrastructure Income Fund to provide “an attractive source of inflation adjusted income over the long term” for investors.
READ MORE: Drax boss says 900 construction jobs in prospect in Argyll Hills
Energy giant Drax then underlined the importance of the storage issue in a big way. After the group posted a near £400 million annual profit chief executive Will Gardiner held out the prospect that Drax could invest around £500 million in expanding the Cruachan “hollow mountain” hydro power plant in Argyll. Cruachan can store and release power generated by windfarms, by moving water between a reservoir in the hills and Loch Awe below.
Mr Gardiner said the Government would need to come up with a mechanism to underpin the returns the company would be expected to generate on its investment. He suggested a mid to high single digit return would be fair.
By contrast, savers would currently be lucky to get as much as 1% interest on bank deposits.
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