The Cost of Energy


May 9, 2013

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Understanding the true cost of renewable energy has always been a tricky task. Especially when trying to create an accurate comparison with other industry counterparts.

However, when it comes to fixing a price on wind energy, is the cat finally out of the bag?

That was the question posed by one of our panelists during a US investor breakfast reception that we hosted in Chicago, earlier this week.

Held at the British Consul-General’s Residence, in conjunction with UK Trade & Investment and RenewableUK, the assertion may have caught some by surprise.

However, it need not. Since, while it might cause some within the more traditional energy markets to furrow brows and reach for the spreadsheets, it’s a simple truth. And a compelling argument that continues to gain ground.

For, when the true cost of renewable energy is set against other power generation portfolios, the fact remains that, in pure economical terms, established wind energy initiatives continue to generate favourable returns.

That’s good news for those looking to invest in what has become an increasingly viable asset class and it’s good news for the market itself, too.

In Germany for instance, market participants have already started to recognise this, as the country phases out its nuclear commitments and invests in a series of high voltage transmission lines; enabling it to rapidly shift energy to where it’s needed most.

It’s a similar story in other corners of Western Europe where, despite ongoing, significant economic turmoil, the market demonstrates considerable commitment and resolve.

But that’s not all. For there’s another interesting line of thinking regarding future subsidies and incentives that’s increasingly tabled by many of those at the top.

Namely, that sector subsidies need not be held high for a short period, to boost growth. Rather, the preference from many is to agree a far longer timeframe, in return for a far lower rate.

That creates certainty and assurance and perhaps most importantly, an environment in which long-term investors can accurately forecast and plan.

That might sound like common sense to many. However, as governments and policymakers have demonstrated time and time again, it’s often very difficult not to continue to tune, adjust and meddle.

Nevertheless the lesson needs to be learnt. For investors have memories for such matters and if they are to repeatedly deploy capital into the market, the framework within which they do so has to be clear, consistent and impenetrable to change.

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