As alternative energy companies face a tougher and more uncertain operating climate, 2017 could be a crunch year. How should you respond?
As government statistics have shown, the renewable energy sector has been enjoying a growth curve. Electricity generation in the UK from renewable sources increased by 29% between 2014 and 2015, accounting for 24.6% of the total. Renewables capacity grew by 23% over the same period. Official data also revealed that some 96,500 low-carbon and renewable energy businesses in the UK generated £46.2bn in turnover in 2014, employing around 238,500 full-time equivalent workers.
However, all is not rosy in the renewables garden. Government policy has appeared to waver in its pro-green support. Subsidies for wind and solar power came under attack under the Cameron government, while the Renewables Obligation (RO) scheme is set to close to new entrants in 2017. The move from Renewables Obligation Certificates (ROCs) to Contracts for Difference (CfDs) has increased uncertainty for investors in the sector. The Brexit vote and the change in Conservative administration have only added to the uncertainty.
These factors are already having a negative impact. According to recent research, the UK has slipped dramatically down the rankings for attractiveness to clean energy companies. Investors are being deterred by increased government hostility to renewables and reduced public funding.
So does this mean the alternative energy movement will finally run out of steam next year?
Not necessarily. Things may be getting tougher, but this could serve to make the renewables sector stronger. The key lies in the industry’s response and its ability to be an affordable and sustainable resource. Reduced subsidies highlight the increased importance of building a viable business model and operating more efficiently. Most businesses face tough competition, challenging environments and the increasing demand from consumers for more resource efficient goods and services. Alternative energy companies are no different.
The right response
If renewables businesses are to thrive in the tougher climate they need to take action now. They need:
- Smarter money: finding the right investors – those with not only funds but also experienced directors – will be important. A good investment relationship can generate more value than the cash injection alone.
- Alternative finance: funding is available in the form of R&D tax credits and grants, but companies can underestimate their eligibility. If you don’t ask, you don’t get.
- Ongoing innovation: finding smarter ways to generate energy efficiently needs to be part of the company’s DNA. This will not only help the business to weather future market shocks, but is also attractive to investors.
- Better reporting: in an era of growing uncertainty, clear and prudent business reporting and planning becomes even more essential for reassuring the market and encouraging investor confidence.
The alternative energy sector needs to prove itself. It needs to demonstrate that its technology is robust and reliable and that risks are being effectively managed. Above all it needs to present a viable, commercial model, rather than one dependent on green activism, philanthropic intensions or government support.
Companies need to toughen up in order to thrive in 2017 and beyond. New challenges can also present opportunities to those able and willing to take them.
If you would like to discuss how to toughen up your business, please get in touch.