An exploratory investigation of barriers, enablers and forces affecting investment in renewable companies in the UK

Victoria Wells, Durham Business School; Felicity Greenwell, Durham Business School; Judith Covey, Durham Department of Psychology; Harriet Rosenthal, Durham Department of Psychology; Mike Adcock, Durham Department of Law; Diana Gregory-Smith, Durham Business School

Abstract & Rationale:The last few years has seen considerable research expenditure on renewable fuel technologies. However, in many cases, the necessary large-scale, sustained, long term funding from the investment community has not been realised at a level needed to allow technologies to become reality. According to global consulting firm Deloitte’s recent renewable energy report, many renewable energy projects stalled or were not completed because of issues ranging from the global economy, the state of government finances, difficulties in funding, and regulatory uncertainty. This project concentrates on the funding aspect and explores attitudes towards and perceptions of the technologies, barriers and enablers to renewable technologies within the investment community. Reporting on the preliminary analysis of eleven in-depth interviews with renewable energy companies (seeking or with investment) and investors (from bankers to fund managers) this project highlights a number of key factors affecting willingness to invest in renewables. Key issues which are highlighted include barriers and enablers such as the stability of government policy and support, the importance of contacts and knowledge, costs and potential return on investment, end user behaviour, public opinion, role of the media, innovative and established companies and individual values and personality of investors.

Methodology:• In depth exploratory interviews have been carried out

with 12 companies covering the stakeholder chain, from policy makers and the renewables industry (those who have been successful and successful in gaining funding) to banking and finance industry.

• August 2011-March 2012

Preliminary Results:Theme 1: Barriers • “Initial cost for him was about 20K but you can’t estimate the cost of electricity going forward so don’t know how long it will take to pay off which is a major problem, and not knowing

whether it will work in the up.”Theme 2: Enablers (& Knowledge & Contacts)• ..there is a need to encourage innovation, there is an R and D gap.”• “….a ’grandfathering system’…a situation in which an old rule continues to apply no some existing situations, while a new rule will apply to all future situations.”• “..we got on to an incubator scheme as well which was extremely useful for us …..it provided us with a network, a professional network that allowed us to behave like a big company.”Theme 3: Role of Government• “we don’t mind the policy we’re set within reasonable bounds, but if you set it, make it last or at least ten years, because whatever policy you set we can work around.”• “I don’t think that it is just having a stable policy I think that it is also having a clear message”• “We would prefer loans; we don’t think grants are the way forward.”Theme 4: Cost/Risk• “The problem is the risk ,and of course the level of return.”• “..the perceived risks of renewables are massively high. The obvious ones are around feed-in-tariffs or cost of operation or unproven technologies are all there; not many of them

particularly valid, but it’s the fear of the unknown.”Theme 5: Value/Return on Investment• “Yes, I would like to do this stuff, but the simple fact is that the law as it currently stands means that anyone who works in finance has a fiduciary duty to deliver a return to the people

that they advise; whether that’s a pension fund or an investment bank or an asset manager.”• “…return and risk are the reasons why investors do or do not invest.”Theme 6: Time• “We projected too far forward into the future and we set standards based on what we think best practice will be five years away…when actually the market is only prepared to really look

two or three years ahead.”Theme 7: Personality/Individual Values• ……if you ever want one sentence to describe the City, the City is built on ego, testosterone and macho chest beating. If you understand that than it all starts to fall into place, and then

you can understand why selling renewable energy is a really hard job.”• “..if I had the choice I would be more than happy to spend all of my time n renewables related stuff…it is doing good.”• “I am concerned with environmental issues, but it’s not my driver.”Theme 8: Level of Innovation• “If you look at most of things within renewables there are some things which are very focused on a new technology or a new methodology, they will always be high risk because those

things always are.”Other Issues/Minor Themes: The investment organisation/corporation: “If someone gave us an infinite budget……first thing we’d do is go and convert corporate behaviour”; Other Stakeholders: “..getting pressure ..from their stakeholders to look at stuff that could be seen to be better than just a simple financial return”; End User/Society/Public Opinion: “…what we’re doing is front-running public opinion. We’ve taken the view , a very strong view, that this is the way the world’s going.”; Role of the Media: “If they read the Telegraph they don’t believe in climate change; if they read any of the other newspapers they suspect climate change is an issue and therefore they’ll have to deal with it”; Size of the Investment: “They feel that marine and wind is a difficult area that they don’t tend to invest in as it requires a large capital investment of 2-10million”; Importance of Reputation: “…it’s getting the track record at this point in time that is what our focus is on. So the first contract is going to be very, very important…”; Importance of the Management Team: “..you had a very capable management team all from an engineering perspective, that they had no experience or in-depth knowledge of the off shore wind market, that wasn’t a problem to me as I could bring that to them, but it did mean that I could sit there with some confidence and say that these guys understand the operational side….”.

Key Conclusions:• The government plays a role as both an enabler and a barrier to investment in renewables, and stability of policy plays an important role in investment

decisions- but it appears that currently it is not reducing risk for companies.• Like any other investment it is a balance between risk and return- BUT- values for the investor/stakeholder do play a part.• Projects that are innovative (new technology/methodology) need to be treated differently by government and investors as they have much higher risk and

different needs to more established companies. • Communication is vital (and can reduce risk) but is currently being done badly.

Further Research:• Further interviews to confirm preliminary results so far;• Compare/Contrast/Integrate with Socially Responsible Investment (SRI) literature;• Experimental work exploring the role of the end consumer and their choices of

investment products;• Potential modelling, via large scale questionnaire of barriers, enablers and forces

affecting investment in renewable companies;• Potential role and success of the green investment bank;