Investing in renewable energy: ‘pro et contra’
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This presentation was prepared and demonstrated 26th April 2013 by Tetyana Borsey, Nikita Larionov, Kenneth White, and Xinyi Zheng Its main objective was providing an overview of the UK renewable energy industry and advice on the prospects of investing in excess £10 million in this industry.
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Investing in renewable energy: ‘pro et contra’
- 1. Investing in renewable energy: ‘pro et contra’ 1
- 2. INVESTING IN RENEWABLE ENERGY: ‘PRO ET CONTRA’ 2Investing in renewable energy: ‘pro et contra’
- 3. Investing in renewable energy: ‘pro et contra’ 3
- 4. • Providing an overview of the industry and the possible returns from investment • Providing advice on the prospects of investing in excess £10 million in the UK renewable energy sector. Investing in renewable energy: ‘pro et contra’ 4 Objectives
- 5. Table of Contents 1. Renewable Energy Industry: a. Global Industry overview b. UK Renewable Energy Industry 2. Investment analysis on Good Energy: a. SWOT of Good Energy b. Financial Performance 3. Recommendations to the client 4. Q&A Section Investing in renewable energy: ‘pro et contra’ 5
- 6. Renewable Energy Industry 6Investing in renewable energy: ‘pro et contra’
- 7. 7Investing in renewable energy: ‘pro et contra’ Source: Ourfiniteworld (2007) Oil discoveries from 1900
- 8. Investing in renewable energy: ‘pro et contra’ 8
- 9. Global Investment activity in renewables Q1 2004 – Q1 2013 9Investing in renewable energy: ‘pro et contra’ Source: Bloomberg, 2013 $billion
- 10. UK Renewable Energy Industry 10Investing in renewable energy: ‘pro et contra’
- 11. Investing in renewable energy: ‘pro et contra’ 11 Source: DECG, 2012 Renewables’share of electricity generated(2010 – 2012) Bio energy, 3 6.71% Onshore Wind, 28. 74% Offshore Wind, 18. 12% Hydro, 1 2.56% Other including solar, 3.8 6% Share of each source within the industry (2012)
- 12. 0 5 10 15 20 25 30 2012 2020 Investing in renewable energy: ‘pro et contra’ 12 Size of industry (2012 – 2020) Energy produced by the industry (2006 - 2020) 0 10 20 30 40 50 60 70 80 £billion Terawattshoursproduced
- 13. Key stakeholders 13Investing in renewable energy: ‘pro et contra’
- 14. Major companies that supply renewable energy 14Investing in renewable energy: ‘pro et contra’
- 15. Political Economic • UK Government participation in 2020 EU Renewable Energy Target to supply 15% of all energy from renewables; • the index of confidence to reach this target is only 47% (EFA, 2013) • In 2012 global investment in the renewable energy market shrunk by 11% to $268.7bn (Bloomberg, 2013) Socio-cultural Technology • Social acceptance of climate change could influence people to use renewable energy in the home • Reduction of production costs; • Electric supply infrastructure was originally constructed around having large fossil fuel power plants Investing in renewable energy: ‘pro et contra’ 15 PEST: Renewables
- 16. Good Energy 16Investing in renewable energy: ‘pro et contra’
- 17. Good Energy: SWOT analysis 17Investing in renewable energy: ‘pro et contra’ Strengths Weaknesses Supplies 100% renewable energy so has high CRI High overall potential of RoE The production of renewable energy contributes to secure energy supply to substitute fossil fuels Scale and scope of the supply chain Established customer base Price elasticity of demand for renewable energy Small market share Energy production is capital intensive Coordination cost associated with sources renewable supplies Increasing costs for electric grids Increasing rates of work-related employee illnesses Opportunities Threats Increasing demand for electricity in the UK EU funds for renewable energy UK’s target level of renewable energy production (referendum) R&D gives the potential for a larger return Untapped offshore opportunities for wind farms Potential expansion of the biomass supply chain Increased competition from MNEs Inconsistency of sources (Solar panel/sun shine) The renewable energy market is a relatively new market Changing of government policy in terms of subsidies and tariffs Consumers contracting budget
- 18. Financial Performance Investing in renewable energy: ‘pro et contra’ 18 Source: Good Energy, 2006 - 2013 £million
- 19. Investing in renewable energy: ‘pro et contra’ 19 Financial Ratios Source: Good Energy, 2006 - 2013 0 0.5 1 1.5 2 2.5 3 2006 2007 2008 2009 2010 2011 2012 Gross profit margin Operating profit margin ROE Current ratio Acid test points
- 20. Recommendations to the client 20Investing in renewable energy: ‘pro et contra’
- 21. Market performance of Good Energy and SSE stocks, at 22/04/13 21Investing in renewable energy: ‘pro et contra’ Source: LSE, 2013
- 22. Key investment statistic for Good Energy. and Scottish and Southern Energy 22Investing in renewable energy: ‘pro et contra’
- 23. • Invest 100% in Good Energy • Invest 100% in Scottish and Southern Energy (SSE) • Diversify portfolio between Scottish and Southern Energy and Good Energy Investing in renewable energy: ‘pro et contra’ 23 Investment Possibilities
- 24. Q&A Section 24Investing in renewable energy: ‘pro et contra’ Tetyana Borsey 09543772 Nikita Larionov 12108281 Kenneth White 12109469 Xinyi Zheng 12110244
Notes de l'éditeur
- Economic conditions in Europe haveled to decrease in asset-oriented investments;Decrease in the cost of new assets;Cyclicalreal investment process. This situation gives an opportunity to invest in the market at its lowest point and to get the maximum gains in the forthcoming years
- Let we move to UK renewable energy market overview
- In the UK, the renewable energy sector is relatively small compared to the traditional sources of energy. In 2012 it generated 41.4TWh or 11.3% of 363.2 TWh total electricity generated with potential to reach 30% of the electricity market in 2020 (DECG, 2013)The main UK renewable energy sources (excluding biomass used for heating) are Offshore and Onshore wind generators at 7.5TWh and 11.9TWh respectively (Good Energy, 2013).
- UK Renewable Energy Industry has a high potential for growth because the estimated practical resource for UK renewables is already equal to 860TWh per year (Committee on Climate change, 2011). It is one of the fastest growing sectors in the UK, in 2009 – 2010 period it grew by 11% comparing with 1.4% GDP growth. Its capacity increased during the last year by 26% (DECG, 2013).The industry was worth £12.5bn in 2012 with potential to reach £24bn in 2020 (PRWER, 2012)The industry employs 110,000 workers in 2012 and forecast to reach 400,000 by 2020 (REA, 2012)
- As a policy maker and a regulator, the government is a key player in the renewable energy sector. It gives tax benefits for investors in the industry; supports input tariffs for renewable sources and has been lenient in dealing with the social impact of renewable energy projects.
- Scottish and Southern EnergyThe UK's second largest energy supplier and the largest generator of energy from renewable sources.E.ON UKA UK energy company and a subsidiary of E.ON, the world's largest investor-owned power and gas company.Good EnergyThe only energy supplier in the UK, which supplies 100% renewable electricity. Scottish PowerOne of the UK’s largest private energy companies. It is the UK's largest developer of onshore wind farms with over 30 wind farms fully operational, under construction or planned.
- Political: Since 2007, there has been deliberate government policy aimed at changing reliance on oil and gas towards the use of renewable energy. For instance, the UK government agreed to EU target of generating 15% of the energy from renewable sources by 2020. However, presently, the index of confidence to reach this target is only 47% (EFA, 2013). Therefore, the main concern among investors is the possible change of the government policy that can affect the earnings potential within the industry.Economical: This situation gives an opportunity to invest in the market at its lowest point and to get the maximum gains in the forthcoming years.Socio-cultural: The social acceptance of climate change (X%) may influence people to use renewable energy in the home. People are very health conscious because of the smog and pollution that traditional energy producers create as well as the impacts of greenhouse gases on global warming and changing weather patterns. This social trend should act as a driver to increase the demand for the energy provided via renewable sources at competitive prices.Technological: Last year’s technical progress within the sector makes the cost of production of renewable energy relatively lower in comparison to fossil fuel; nevertheless, the main modern technological challenges for the industry are associated with energy storage. Intermittent renewable power production from wind and sun requires significant backup generation to cover the smoothed power demand. This holds even if wind and sun produce on average 100% of the required energy. In addition, the current electric supply infrastructure was originally structured as having large power plants generating energy on a regional basis. Therefore, it must change to allow for energy supply from small generators of renewable energy. Continuous technological development should be capable of delivering breakthroughs that will improve capabilities and lower overall costs. Funds must be invested in research and development by companies as this will enable them to increase profitability for these companies.