Comment by Rob Denman, Managing Director of Pathfinder Clean Energy Group.

As covered in React News on the June 13th, 2023.


The economic, political and social volatility of the past three years has delivered a dose of shock treatment to investors accustomed to a more tranquil environment. Pandemic, war, inflation and an energy crisis have driven many to seek a new approach to portfolios that offers exposure to new markets beyond their core real estate investments, including clean power.

Renewable energy has been around far too long to maintain any sense of novelty. Solar power has been widely used in the UK since the 1970s and by the end of April 2022 there was close to 15 GW of total capacity. [1] 

There is new global momentum behind renewables, leading Fatih Birol, director-general of the International Energy Agency to report in May that investment in solar was set to outstrip oil for the first time in 2023. [2]

Before Russia’s invasion of Ukraine, focus had been on decarbonising the energy supply to fight climate change. Since the unprecedented rise in prices of last year, there is a new imperative: maintaining an energy supply that is independent, secure and affordable. 

Solar and wind, supported by energy storage, cover these bases. While the UK may not be known for its abundant sunshine, solar has the potential to deliver significant contribution to the energy network. For example, it has provided over 30% of the country’s electricity needs at certain times in the months of May and June of this year. [3]   

There are other reasons why the investment case for solar power and wider clean energy is increasingly persuasive. The growth in electric vehicles, heating and the infrastructure necessary for climate-change adaptation such as increased use of air conditioning and even AI will drive increasing electricity consumption. To meet net zero targets that demand will have to be met with renewable energy sources. 

The rationale for renewables has rarely been more positive, with  a stable long-term investment case.  While current power prices have fallen below the highs of August 2022, volatility seems likely to remain a feature of the market and the requirement for locally generated clean energy can provide a route to healthy returns on projects that run to 40 years and beyond with strong capital downside protection and inflation hedge. 

Beyond the financial case, clean energy projects help investors to meet their wider ESG commitments. Solar energy is unambiguously sustainable with “carbon payback time” of between 1 and 4 years on hardware that can operate for three decades or more. 

While the demand for renewables projects is strong and improving, the supply is less assured.

Governments may have been highly active in setting renewable energy targets in recent years, but away from the offshore wind arena and its highly structured long term auction process, onshore energy development can be quicker and relies on more entrepreneurial and faster acting development players to manage the process.

The UK government’s recent political positioning around utility scale solar and onshore clean energy has been ambiguous at times with debate in particular around the use of farmland from some backbench MPs. Nonetheless, ministers have held firm on their target of 70GW of installed solar by 2035, recognising that solar farms provide a clean low cost form of power, which allows farming to continue around them while also benefiting biodiversity. This makes them a core part of the energy mix. With an election due in 2024 the support for clean energy should grow whatever the outcome. 

Another complication is the readiness of grid connectivity with projected connection dates for new projects stretching into the 2030s although there is now a recognition across Ofgem and the grid operator community of the urgency to facilitate increasing connections, but only for the most deliverable projects.

Not all investment opportunities are created equal then.

Much of the capital in this sector is invested into blind pools with limited understanding of the development and operation of the assets. In a development environment with an uncertain regulatory outlook, delayed grid availability as well as supply chain uncertainty, that results in capital remaining undeployed for material lengths of time as assets are developed. 

The most immediately productive route for investors considering adding solar to their portfolios is to seek “shovel-ready” projects. What that means in practice is that projects that have signed lease options in place, an agreement on a date for grid connectivity as well as the necessary planning permission. With these secured, investors have a more visible and assured route to returns.

If the UK is to meet the government’s goal of the full decarbonisation of the energy sector by 2035, the solar industry will need to contribute all 70GW of its current target, but with the benefits of energy storage has the potential for much more. So, the long-term outlook for the segment is sound and the investment drivers only strengthening. 

In the short term, however, supply constraints will continue to be a factor. But for savvy investors seeking diverse and sustainable portfolios, there are smart opportunities available to participate in a more immediate phase of solar and clean energy growth.. and your children and grandchildren may also be supportive too if you ask them.