09 Aug 2018

Read our article on Renewables+ magazine

The energy industry is undergoing a seismic shift whereby developments are being driven by economics and consumers. Innovation has led to very rapid falls in costs for renewables generation and has made these prices competitive with fossil fuels, as well as significantly cheaper than nuclear. Competitive costs mean that renewables investments are no longer as reliant on subsidies to be developed and built. Digitalisation of the sector has also opened up opportunities within areas such as smart technology, demand-side response and energy trading.

Our approach is to look for industries that have huge macroeconomic tailwinds and where we can improve the experience for customers. The sheer scale of the opportunities offered by the energy transition, however, creates challenges of prioritisation. We are therefore careful to continue focusing on delivery and keeping our customers and investors central to our strategy. Instead of operating as a typical investment company, we establish the businesses, skills, capabilities and technology that are helping us build a next-generation energy company. This delivers better outcomes for investors and enables us to expand the range of emerging opportunities we can take advantage of.

The most obvious of these opportunities is solar generation, in which we are currently the UK’s largest investor. We built our first solar plant in 2011 and now have 154 solar farms across the UK, generating 40% of the country’s large-scale solar energy – equivalent to powering a quarter of a million homes. There are some challenges in the UK solar market, for sure. High demand and a shortage of supply of solar assets with government subsidies are driving up price. Although merchant and subsidy-free power is on the horizon, the number of companies involved in the UK’s PV sector has decreased dramatically, with widespread consolidation underway. As a result, investors have had to adapt their business models. However, thanks to strong relationships and a track record of delivery, we find it’s still possible to secure the right opportunities for the right price.

The long-term outlook for renewables in the UK remains attractive. Britain has a stable legislative system, a large base of installed renewable energy capacity and a mature market. So we will continue to seek opportunities in the UK. With the change to incentives for new onshore wind and solar projects, opportunities for new construction are limited. However, unsubsidised renewable energy projects are just around the corner and we’re already looking at this market. In addition, as large corporates increasingly seek ways to minimise their effect on the environment, our corporate PPA offering has been gaining traction and adds another string to our bow.

There are opportunities abroad, too. We believe the platform we have built in the UK – based on a leaner business model, less bureaucracy, more transparency and an emphasis on clean energy – can be replicated overseas. We already have portfolios in Italy and France, including 66 solar projects. We have also established a team on the ground in Australia to expand in what we believe will be an interesting market in the coming years.

As we have added more assets to our generation portfolio – not just solar but onshore wind and anaerobic digestion– our focus is turning from new construction to improving returns for investors through asset optimisation. We have added significant technical, commercial and operational expertise to our in-house asset management function. A strategic partnership with a high-tech company called Reactive Technologies, which has developed a communications and control platform to coordinate energy generation, storage and demand, will help us deliver improvements in expected returns and reduce risks.

To complement the skills of our in-house team and partners, we sometimes require the support of external consultants. Octopus has had a long partnership with RINA since the beginning of our investment activity in renewables. RINA supported Octopus as Technical Advisor in the acquisition of the majority of the solar assets from Lightsource Renewable Energy, as well as in some recent asset activity. RINA is also currently supporting us in the acceptance process for some of our solar plants. In addition, it is acting as Technical Advisor in the technical due diligence and construction of unsubsidised assets in Italy.

We’ve got a leading digital platform and a great team, in an industry that is undergoing a significant transformation. There are countless exciting opportunities to deliver something that is a win for our investors, for consumers and for the planet. It’s a thrilling industry to be involved in. Watch this space.