Since 2011, the global European and UK economies have continued to struggle towards growth, and this generally weak ongoing economic environment has impacted on activity levels and investment in the renewables sector.
During 2012 a combination of uncertainty about availability of finance and the future direction of government policy has reduced the 450 survey respondents’ business sentiment towards the investment market, and the 2012 barometer shows a marginal reduction in expectations for the year ahead.
Nonetheless, only 7 per cent of businesses expect deterioration in private investment into the sector over the next 18 months, which is extremely strong when contrasted with other economic indicators and businesses operating in other sectors.
Firms working in the renewable energy sector have been even split in both the 2011 and 2012 surveys about how the current investment situation compares to 12 months ago. A third believe they are operating in more favourable circumstances, a third believe the situation is no different from 12 months ago and a third believe it has deteriorated.
While, on the surface, this suggests a very mixed view of the current position, in a wider context this presents a more optimistic picture than other similar published data on consumer sentiment and investor confidence in the UK over the last year. A higher level of investor confidence suggests positive economic conditions for consolidation and growth. As a result, it is likely that at least a third (and up to over a half) of firms see themselves in more positive trading territory than 12 months ago.
In very general terms, marine energy businesses are slightly more positive about the investment climate, compared to 12 months ago, than wind businesses. Interestingly, the most optimistic firms tend to be the very largest (those with more than 500 employees) and the very smallest (with fewer than 25 employees).
As with all business sectors, private investment in renewable energy is intrinsically tied to wider investor and sectoral confidence about the future direction of the sector, based on innovation in new products and processes and the economy, government policy and future energy demand. With positive sectoral confidence, a helpful investment environment is created, facilitating investment at the level of individual firms. This is emerging, but confidence in order to make longer term strategic business decisions is still lacking.
The sector believes that it needs supportive and firm government policy to give direction to the renewable energy sector to attract investors and therefore grow companies. As the companies which expect the greatest investment levels are the larger firms, it is clear that they are better positioned to attract investment from private individuals, financial institutions and multinationals, than smaller firms. Many large firms intend to reinvest profits into growing their businesses over the next 18 months, an opportunity which is not possible for small and medium-sized enterprises (SMEs) in the sector which are more reliant on bank lending.
Employment in the marine and wind energy business is likely to increase significantly over the next 18months
Looking at investment over the next 18 months at a sectoral level, the largest increases are likely in offshore wind. Some 40 per cent of offshore wind respondents expect to see private investment increase by between 5 per cent and more than 20 per cent. A further 15 per cent expect to see private investment increase by more than 20 per cent.
This expected growth in private investment in offshore wind can be contrasted with the outlook for private investment in onshore wind where 44 per cent of businesses expect to see no change in investment or an actual decrease over the next 18 months. Only 5 per cent of onshore wind firms expect to see an increase great than 20 per cent over this time period; the majority of those expect to see it come from private individuals and bank lending.
The private sector is playing a very strong role as a source of new investment into the sector with many private investors and multinational companies likely to provide the bulk of new investment. According to more than 30 per cent of respondents, this will amount to more than £5 million invested in their firms. The wind sector expects to see the quickest and fastest gains in investment into 2014.
The Green Investment Bank’s mission will be to provide financial solutions to accelerate private sector investment in the green economy. Capitalised with £3 billion, the government hopes the bank will play a vital role in addressing market failures affecting green infrastructure projects in order to stimulate a step-up in private investment.
Some 21 per cent of green energy businesses are unsure whether the bank will be effective in attracting private investment to wind and marine energy. A further 12.6 per cent believe that it will not be effective at all. Asked to assess its effectiveness on a scale of one to six, most respondents erred on the side of caution. Only 11 per cent ranked its potential effectiveness in the top two categories, ranking it highly effective. Some 24 per cent of respondents did not answer the question and a further 21 per cent opted to say they were unsure. Thus 44 per cent of marine and wind energy businesses were unable or unwilling to foresee the impact of the Green Investment Bank on attracting investment to the sector. This suggests the bank is either not relevant to decision-making or not fully understood by the sector.
Asked for the single most important incentive for development, businesses in both the offshore and onshore wind sectors raised the same four topics: supportive government policies and commitment; energy price supports (Renewables Obligation Certificates, Feed-in Tariffs, Contracts for Difference); certainty and confidence; and return on investment. Again, as has been the case so often with this survey, businesses in the wind energy sector believe that future investment levels are intrinsically dependent on wider sectoral confidence levels.
Employment in the marine and wind energy business is likely to increase significantly over the next 18months. A full 70 per cent of respondents to the survey, across the marine sector as well as onshore and offshore wind sectors, plan to take on additional employees during the period to mid-2014. Of the 6.4 per cent of respondents who expect to decrease their employment (reduce their workforce through redundancies or natural wastage), all are in the wind sector, mostly specialising in onshore wind. These firms mostly work in planning and the provision of specialist consultancy services. The bulk of them are in the SME community, so it is likely that the impact of job losses will easily be offset by the increase in employment among other planning and consultancy firms in the sector.
It is likely that the greatest beneficiaries of this anticipated increased level of employment will be those aged under 25 years old. On average, the firms in this survey expect to employ four new people aged under 25 in the next 18 months, the majority of whom will be in the wind sector. Not only do they account for a significant percentage of the new employment in the largest firms (which might be expected), but they will also see improved opportunities in smaller, more specific technical firms working in the renewable energy sector.
As the UK economy emerges from the global recession, much of this anticipated future investment will become real, bringing with it increased employment, enhanced confidence and greater rewards.
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