Restructuring in the renewable energy sector: what does the future hold?
What is the current state of play?
Julie Thomlinson, Partner at Thomlinson Kiddle Law, said: “There are large amounts of third-party capital available for the development of renewable and green energy projects. However, due to the perception of high risk involved in project development, lending is often at relatively high interest rates. We repeatedly see broad assumptions in financial models that are unrealistic over the medium to long-term, and that do not reflect the inherent risk of change in the critical elements of income sources or costs to the project. This makes it particularly challenging for projects to meet costs resulting in financial under performance and losses. This is where seeking specialist advice can assist both the project developer and the funder.”
The renewable energy sector is in a constant state of flux. Currently, the primary driver of development in the UK has been the availability of government subsidies, made accessible as part of the UK’s efforts to improve its energy security, and to meet its targets of reaching net zero greenhouse gas emissions by 2050, as well as reducing emissions to 68 per cent of 1990s levels by 2030. As policy goals have changed, and subsidies have been allocated and re-allocated, so too has the industry’s direction of travel. However, some form of subsidy or incentive available for renewable or green energy will most likely continue to be a mainstay of government policy for a considerable time yet. Technologies that receive subsidy or incentive support tend to see large spikes in activity as developers move quickly to take advantage of financial incentives. This has contributed to technology-specific periods of growth, often followed by periods of restructuring and consolidation as some projects stall or fail to adapt, or as the subsidy landscape changes. Currently, the energy sector’s focus is moving towards the widespread installation of battery storage technology and offshore wind and solar installations. This is attracting significant levels of investment from both inside and outside the UK. The government has set out its ambition to quadruple the UK’s offshore wind capacity by 2030, and the world’s largest offshore wind farm is currently under construction in the North Sea, set for completion in 2026. Meanwhile, there is significant attention on the possibilities in hydrogen as a fuel for the future. Other factors influencing the UK renewable and green energy sector include the availability of skilled workers and the short-term difficulties of import and export while the industry adjusts to the UK’s departure from the European Union. Esther Kiddle, Partner at Thomlinson Kiddle Law, specialists in supporting transactions, disputes and environmental clean-ups in the renewables industry, said: “UK energy policy isn’t just about energy – it is all about the drivers and interdependencies between the UK’s objective of attaining energy security, European and energy policy in other jurisdictions, the global market economy
The pandemic has heightened public awareness around environmental sustainability and brought new efforts to
manage and reduce our environmental impact. Jason Baker Restructuring Advisory
How has the COVID-19 pandemic affected the sector?
COVID-19 will likely be remembered as both a disruptor and an accelerant. For projects that are seeking funding or are ready to fund, ongoing uncertainty is, in some cases, delaying decision making and effectively suspending projects until further capital can be found. In other areas of new technology we are seeing increased foreign investment in the UK. The pandemic has heightened public awareness around environmental sustainability and brought new efforts to manage and reduce our environmental impact. Calls from early in the pandemic’s course for a green recovery have continued into 2021, with the coming months and years likely to see more money invested at a government level into decarbonisation. Recently, there has been public encouragement of large investments into global decarbonisation – a reflection of institutional investors’ direction of travel. The focus should now be on how money is spent. Policymakers will be keen to maximise returns for the public by investing in ‘quality’ projects, although it remains to be seen where their focus will be.
and the availability and demand for natural resources, including energy.
Understanding all of these interactions is key to understanding the market as a whole.”
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