Could More Investment in Renewables Spell the Death of Fossil Fuels?

It used to be that investors would shy away from investing heavily in renewable technologies. After all, putting your money into fossil fuels such as gas and coal, not to mention nuclear, always seemed a safer bet. However, the latest developments seem to suggest that many investors are moving into the renewable arena, and not because it’s the green thing to do but because there is a substantial profit in those solar panels and wind turbines.

Investment in Swansea

This month a further £100 million was invested in the proposed tidal power station planned for Swansea Bay, following on from a similar amount that was put in by the Prudential last autumn. The difference this time is that the money comes from a consortium, InfraRed Capital Partners. It follows a growing trend of investors looking to get their cut of the big renewable projects both here in the UK and abroad.

With a reduction in subsidies for many UK projects, finding private investment to carry the installations through has become all important.

Solar Driving the Investment Boom

According to the Guardian recently, it’s the growth in the solar market that has started to drive greater investment in renewables. In 2014, it grew by 16% with some £205 billion put into projects, fuelled in some respects by the US and China. Increased investment also comes down to the lowering cost of solar and its growing competitiveness with other energies, particularly fossil fuels.

There have been some big investments, notably the $1 billion put into the Setouchi solar plant in Japan and a similar amount in South Africa. Energy Secretary Ed Davey recently linked renewables to a boost in the economy of the UK: “Renewables are proving they can be cost competitive, which is why they are playing a key role in powering the economic recovery.”

Cheaper Oil and Renewable Investment

The news might not all be good though. The sudden fall of oil prices may well have an impact on the total investment in renewable energies. A number of experts believe that renewables are now well enough established that they can weather the storm of cheaper fuel being on the market and attracting away the money. In places like the US and the UK, renewables generate significantly more power than oil but that’s not the case everywhere including large expanses such as South America and the Middle East where it is more competitive.

Where the falling fuel price may affect markets like the UK is in the uptake of biofuels – why would businesses go for the more expensive alternative if they can get cheap oil? The other issue is going to be how long the oil price slump lasts and the impact that will have. It may of course need policy makers around the world to take a harder stance if they want to meet their emissions targets in the future.

The China Effect

Many industry experts have said that the increase in renewable investment last year may well prove a little more difficult to replicate in 2015. That’s because a large part of the increase has come from the substantial efforts of the Chinese to embrace technologies such as solar panels. According to Bloomberg: “Funding surged because of a 32 percent expansion in China’s commitment to renewables, as well as a record $19.4 billion committed to offshore wind projects that were years in the making. Money also flowed into electric cars, especially for Tesla Motors Inc., just before cheaper gasoline prices reduced forecasts for that segment.”

The Future of Renewable Investment

In the UK, government uncertainty about how it is going to fund renewables as they try to balance the books for the national budget could lead to some degree of reticence about investing in green technologies. It’s the same in other parts of the world, particularly in Australia where their renewable energy target is facing an uncertain future. Countries such as China and US, however, are pushing forward and if renewables are to become the mainstay of our energy provision in the future, then the conditions for sound investment will have to be provided by policy makers and governments alike.

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