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Let’s make Doubting Thomas the patron saint of green energy investment

Showing data to investors a huge start.


Image: Dan Klein of Zühlke


You can’t move for headlines heralding a massive green opportunity. Downing Street plans to invest £12bn and create 250,000 green jobs, ex-Bank of England governor Mark Carney says $170trn of private wealth is ready and waiting to join the green investment part, and there is a wave of industry commentators telling investors to get their cheque books out because everything will be different with a new US President at the helm.


In nine years’ time, all new cars will need to be zero emission. While 2030 might seem a long way off, that is just around the corner in infrastructure terms given the volume needed as well as the planning, financing and building process.


It is easy to be brave with other people’s money. So what actual investment opportunities are we talking about here?


We are talking about investing in an emerging market being forced into existence through government policies such as banning the sale of petrol vehicles by 2030.


We are talking about changing the electricity industry and investing in a sector that has resisted change since the new grid was designed in the 1950s.


We are talking about investing in generation capacity, some of which is weather dependent to generate anything at all.


And we are talking talking about electric vehicles, which will create demand at locations the grid design of the 1950s had never considered.


As well as the hype around green investment, we should also admit that with investment in a new sustainable energy system, there are some unknown unknowns, as Donald Rumsfeld would say.


What would he make of the recent news that the National Grid Electricity System Operator was fined for failing to provide accurate seven-day electricity demand forecasts for five months? He might ask to what degree he can trust any of the source data that underpins his green infrastructure investment models.


Although the electricity industry has been largely static for decades, it is noticeable that the tectonic plates of the industry are now shifting. The National Grid announced a £7.8bn acquisition of Western Power Distribution. Clearly, it is ensuring that its business will have long-term commercial resilience.


The energy system will change from a centralised one to an increasingly localised one. In the near future, energy will be generated, traded and consumed in the communities where it is needed, as opposed to transported around the country, incurring power loss due to resistance on the lines. Hence the Grid’s acquisition of Western Power Distribution, a local energy distribution company.


Having been rude about the energy industry, we should also take our hats off to the many capable people that currently ensure we have secure supply.


Yet investors are now being asked to have faith that these same people are also experts in the discipline of engineering change, and can design and build a completely new energy system that will work in a very different way.


Fortunately, there are some positive signs investors will not be expected to rely on faith alone. The energy industry knows it needs to provide information and data that investors can rely on.


The industry’s Energy Data Taskforce has been successful in driving real action and opening up operational energy data to aid collaboration in designing the new energy system.


Access to real operational data is good news for investors. Yet investors should maintain a healthy scepticism. It is not good enough just to build investment models with different threat or opportunity scenarios.


Investors need to ensure they eradicate systemic risk from being introduced into their investment models in the first place. That means understanding the provenance of the operational energy data that is becoming available and the measurement error associated with each data source, to avoid multiple layers of errors stacking up and put investment business cases at risk by introducing systemic error.


Investors should protect themselves against hype and expectations of faith. In fact, just like Doubting Thomas, investors need to be sceptical and ask to understand the provenance of data that business cases will need to rely on.


But the clock is ticking. Governments, as well as the energy industry, need to attract new investors, players and technology disruptors. Investors need to scrutinise the green energy opportunity hard and fast, to expose the problems and to apply dynamism that helps a slow-moving industry accelerate and radically change.


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