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How to profit from the UK's energy efficiency drive

How to profit from the UK's energy efficiency drive

by Danielle Levy Jul 25, 2017 at 00:01

 

Consumers could make significant savings on their energy bills by using smart meters and smart devices to sell excess capacity back to the National Grid.

New rules, which are due to come into effect next year, will do more to encourage consumers and small businesses to use ‘smart meters’ and ‘smart white goods’, which can be operated by a smart device, to reduce consumption at peak times.

For example, this could mean turning on your washing machine through a smart device at off peak times.

The idea is that aggregator organisations will act on the behalf of consumers to package up energy capacity and offer it back to the National Grid.

‘If you have a smart meter and smart white goods, it means you could offer demand-side response to an aggregator,' explained a spokesman from energy watchdog Ofgem.

He said yesterday's announcement aims to make sure that the new energy system is supported by an appropriate regulatory structure.

The rules will also make it easier for energy users who generate their own solar power to store it in batteries and sell it on to the National Grid. At the moment, solar energy users are charged to import electricity into their home or export it back to the grid. The government plans to reduce these charges so that people aren’t deterred from using power in a more flexible way.

The government and Ofgem estimate that the rules could save UK consumers between £17 billion and £40 billion by 2050.

Bruce Jenkyn-Jones, who is co-head of listed equities at Impax Asset Management and part of the management team of Impax Environmental Markets (IEM), welcomes these initiatives. In theory, he says they should support the next stage of growth in the renewable energy market and smart energy consumption.

‘This new phase is a combination of renewable energy, energy storage, smart technologies and demand response…A lot of things have changed over the last 12 to 13 years. This is an important step to allow all of those components to be integrated from a regulatory perspective for the consumer to get the benefit,’ he explained.

The announcement suggests that the government has given a lot of thought into providing the right regulatory structure to support new trends in energy consumption, Jenkyn-Jones said. Nevertheless, the devil will be in the detail, so he and the Impax team will look into how the rules work in practice.

Battery technology revolution

The announced changes form part of what the government's ‘modern industrial strategy’. This includes a £246 million investment towards developing battery technology. Around £45 million of this amount will be used to fund a ‘Battery Institute’ competition to establish a centre for battery research. The intention is to make this technology more affordable.

The £246 million will be spent over four years on research to encourage innovation in battery technology, which will have repercussions for the growing electric car market and renewable energy.

‘To enjoy a high and rising standard of living we must plan to be more productive than in the past,’ said business secretary Greg Clark. 

‘Economists have pointed to what they have called a productivity puzzle in Britain. That we appear to generate less value for our efforts than, say, people in Germany or France. In other words, we have to work longer to get the same rewards,’ he added.

Back in January the government sought input for the new industrial strategy, attracting more than 1,900 responses in the process. A white paper providing more detail about the strategy is due to be published later this year.

Jenkyn-Jones welcomes this initiative but notes the amount the UK government has committed pales into insignificance when compared with the billions of dollars that has been spent to scale up lithium-ion technology in the US, China, Korea and Japan.

‘There are a few questions over how they make use of that money because globally a huge amount has been invested in what is quite a commoditised product, where the costs are coming down with lithium technology,’ he added.

Accessing the theme

For investors looking to benefit from the growth of renewable energy, battery technology and energy storage – what are the best ways to play this theme?

Jenkyn-Jones prefers to back suppliers of components that are used to make batteries rather than the battery manufacturers themselves.

‘There are a lot of suppliers of components, such as anodes, sensors and connectors, that are used to make the battery. That is what we are looking for. These companies are very profitable and make good returns,’ he said.

In contrast, battery manufacturers typically have low margins.

It is a similar story when it comes to solar panels, according to Jenkyn-Jones.

‘There are a number of companies globally which make solar cells that are quite commoditised and low profit,’ he said.

In contrast, he says the investment case looks much more attractive for suppliers of components for solar panels.

There are some speculative investment opportunities associated with new battery technologies and storage, for example fuel cells and hydrogen storage. Companies that operate in this space can look very exciting, but the fund manager points out there are risks involved – particularly as some of these businesses are early stage.

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Comments  (6)

  • Micawber: 

    And those companies would be....? Generalisations are not much use, I'm afraid.

    10:00 on 25 July 2017

  • JohnW: 

    I remember when we were told that the energy generated by atomic power would be so cheap it would not be worth collecting the money. :(

    10:16 on 25 July 2017

  • The Old Man: 

    What a cynical pair! Its just that you will have to live for anther 10 years before the 'new technology' is fully available and then get 20 years use from it before you get your capital back. A bit too long term for me!

    10:21 on 25 July 2017

  • JohnW: 

    Me too at that rate, I'll be 104. Mark you I've no intention of going yet!

    10:42 on 25 July 2017

  • Jonathan: 

    These "home batteries" are just lots of the lithium cells they put in laptops all wired together. I've never had a laptop where the battery has lasted more than three years before it stops holding any charge. £4,000 just for the battery is more than I spend on electricity in 10 years so unless there are big subsidies and the price comes down and the batteries last longer than they currently do there is no point in getting one.

    16:54 on 25 July 2017

  • Dennis .: 

    There is always Fusion power which we are told will be another 30 years. (And always will be).

    My bet is on National Grid, whatever happens they own the electrical motorways and collect tolls on all traffic however creates it (or fails in the process). Must be a long term safe bet given the guaranteed traffic increases as electric cars become the norm.

    17:21 on 29 July 2017

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