The clean energy revolution: 5 trends in renewables investment

Connor Monaghan from Dow Schofield Watts’ Corporate Finance team, author of a report on the clean energy transition, outlines the rapid changes taking place

As the world shifts away from fossil fuels in the race to achieve net zero, renewable energy will be the central pillar in the transition. As our recent report shows, clean energy is attracting increasing investment and driving record levels of M&A activity. The energy crisis following the outbreak of war in Ukraine will only serve to accelerate the roll-out.

Here are five key trends to be aware of:

The pool of investors is growing.

Gone are the days when investors had to be tempted by the promise of subsidies and tax relief. Renewables can now offer attractive returns in their own right and are pulling in an ever broader range of investors – from the big institutions and pension funds to private equity firms and specialist green and ESG funds. Corporates, including utility firms, are also in the market as they seek to add green capacity to their existing fleet.

Renewables are more competitive.

While the cost of new solar and wind installations has been steadily falling in recent years, the trend reversed in 2022 due to factors such as rising materials prices and supply chain issues. The cost of onshore wind plants has risen by 15-25% on pre-Covid levels and solar by 10-20%. However, fossil fuel prices rose even faster, which has further enhanced the appeal of renewables as the cost of generation is much lower.

Capacity is increasing rapidly.

Figures from the International Energy Authority show that in 2022 generating capacity increased by a record 9.6%, with an additional 295 GW created. In 2023 it forecasts that capacity will rise by 18% or 350-400 GW. It predicts that renewables will replace coal as the main source of global electricity by 2025. Wind and solar installations account for most of the new capacity, with bio-energy, geothermal and hydropower making up a small proportion. China continues to dominate deployment, with Europe, including the UK, being the second largest market.

Renewables M&A activity at record levels.

The value of global mergers and acquisitions in the renewables sector reached a record £118.7bn in 2022 – up 57% on the previous year – while the volume increased by 63% to 1,036. Based on our own research, DSW predicts that the deals market could almost treble in the coming years to almost 3,000 deals worth nearly £2 trillion by 2030.

New technology is driving the uptake.

Infrastructure is not the only option for renewables investors. There is a whole range of associated technologies and services designed to help the market to operate more effectively. Batteries and storage technologies are key to unlocking the potential of clean energy and improving demand management. Hydrogen, particularly green hydrogen, could be another way to store large quantities of renewable energy.

Smart grids will improve efficiency, enabling distributed power sources to be integrated into the grid along with analytics. Different elements – such as smart meters and high voltage direct current (HVDC) systems or ‘power superhighways’ – are being rolled out at different speeds. Energy-as-a-service – a new delivery model that combines hardware, software and services – will decentralise energy resources and change the way we consume energy just as live streaming replaced videos.

Technologies like these provide opportunities for investors at every level. In the years to come, they will play a key role in driving M&A activity, improving the uptake of renewables and supporting the clean energy transition.

Download a copy of the report here.

Connor Monaghan

DSW Corporate Finance Manager