Renewable infrastructure – a diversified approach

Ground-mount solar and onshore wind are large and growing markets that are well understood and have manageable risk profiles. Both technologies have been deployed at scale globally and in the UK, with a mature ecosystem of related service providers. This improves investors’ ability to forecast the operating lives of projects, project operational costs and predict key technical parameters such as availability of the site to generate electricity to sell to the grid, and degradation of the asset (i.e. its reduction in performance over time.)

The maturity of the UK market means suppliers are more willing to offer fixed price contracts and guarantees for key elements of projects such as construction costs, further reducing risk. 

 
From a capital deployment perspective, the improved cost competitiveness relative to fossil fuels  is supporting installation of more sites in the UK. Wind and solar farms can be constructed within reasonable timelines, sometimes in under twelve months, compared with other low carbon technologies such as nuclear plants or hydro dams that can take years to build.

Onshore wind and solar deployment in a combined scenario are expected to grow from approximately 31GW in 2023 to 72GW by 2035. This provides ample opportunity and scale for capital deployment in these technologies over the coming years.

A diversified approach that includes both wind and solar assets benefits investors by broadening the pool of suitable existing assets or new projects and enabling investors to identify the best opportunities from multiple technologies with attractive growth and risk profiles.

Solar and wind technologies exhibit a different mix of technical, supply chain and weather dependency risks, thereby diversifying total risk within the portfolio. Research and experience in the sector suggest that solar and wind in the UK have complementary energy generation profiles.

Solar typically generates higher output in summer when daylight hours are elevated, and wind typically generates more in winter when there are above average wind speeds. A combination of the two creates a smoother revenue profile throughout the year than either of them would achieve independently.

Battery Energy Storage Systems (BESS) complement variable renewable energy generation in a portfolio. They can provide several services but are increasingly being used to help balance supply and demand. During periods of high renewable generation when power prices are often lower, the BESS system can charge up. It can then export this power during periods of lower renewable generation when the generating asset won’t be fully utilising the export connection, or at times when power prices are elevated.

At a portfolio level, BESS provides a hedge against wind and solar. As dependency on renewable energy from the grid increases, exposure to generation fluctuations from weather variability also increases. This creates opportunities for energy storage and demand shifting to help balance supply and demand.

Lastly, BESS can be co-located alongside wind and solar generation, creating a project with better economies of scale.

* Alpha Real Capital commissioned the survey of 100 UK public and private pension fund, and insurance senior investment professionals in the UK. Collectively they manage £359.82 billion in AUM. Interviews were conducted online in November 2023.