In the same week that a disastrous meeting between OPEC and Russia hit the price of oil, the UK government announced it would lift a ban on onshore-wind and solar from competing in subsidy auctions.

The approximate 30% slide in the oil price was a reminder of how vulnerable the commodity can be at times, when supply is dictated by a few oil rich nations. The argument to de-carbonise energy production is well past its tipping point – it’s now cheaper for the majority of the world (and continues to get cheaper) with almost no negative side effects for the environment. Compare that to burning fossil fuels. 

The decision in the UK to lift the ban will encourage more renewable projects as the government guarantees a minimum price the developer will receive for the energy produced. Since the decision to ban onshore projects from competing for subsidies in 2017, unsubsidised projects have still gone ahead and proven they are feasible without government help. However, to reach the UK’s ambitious climate targets, support is needed to speed up investment.

On paper, we have one of the world’s most progressive climate policies. The net zero target by 2050 was signed as legally binding in June last year. This type of announcement was the first from any major economy.

The UK has been advised by the independent body, Committee on Climate Change (CCC), that clean energy production will need to quadruple in order to achieve the net zero target.  

Onshore wind is currently the cheapest form of energy to produce in the UK, so opening this market back up to subsidies is an encouraging sign and will benefit the likes of Orsted and SSE (plus some landowners in the Highlands!)

Currently there is about 8.5GW installed around the UK’s coastline. So there is ample investment opportunity to reach the 40GW of offshore wind by 2030 that has been pledged, alongside the CCC’s recommendation of building 1GW/year of onshore wind until 2050.

It’s the first time, in a long time, that we have had utilities analysts claim that this is now a growth sector. With more renewable-friendly regulation, the UK’s abundance of wind is likely to become one of our major assets.

About the author

Euan Ker is a Sustainable Investment Analyst. He is responsible for analysing and monitoring environmental, social and governance factors within the Global Sustainable Equity Strategy. Euan joined us in 2014 as an investment implementation analyst with responsibility for implementing macro investment decisions across a number of fund-of-fund mandates, totaling some £13 billion under management. Prior to moving to the ESG Research team in 2018 his responsibilities also included asset class, regional and currency hedging overlays through derivatives. Euan has a 1st Class Honours degree in Management with Economics from Robert Gordon University. He has the IMC professional qualification and has 6 years’ industry experience.*  *As at 30 November 2019.

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