Why greed may bring new growth for renewables

Jeremy Leggett is the UK’s most respected green energy boss. He explains how investors are driving transformation of the energy industry, despite half-hearted government support.

The days following the burst of the dotcom bubble were heady, nervous times: politicians, shareholders and commentators waited anxiously to see how stupid they would be made to feel when companies with tiny businesses and almost no assets turned out not to be worth billions of pounds after all.

It was not a good time, therefore, for a new company which wanted to sell solar panels in famously gloomy Britain to catch the attention – and cash – of those investors watching their internet billions crumble. But Solarcentury raised the £6m it needed.

Looking back eight years, the timing seems appropriate: the last great information technology-based transformation of our economy was giving way to what many believe should be the Next Big Thing: green technology. These are heady days again; experts claim $100bn will be spent globally on renewable energy alone this year – 10 per cent of the total investment in energy, despite renewables so far having only half a per cent of the global market. It’s not just energy either. In California alone, governor Arnold Schwarzenegger recently told the UN that his state last year received more than $1.1bn in clean-tech investment, and this amount is expected to grow by 20 to 30 per cent annually for the next 10 years. ‘More venture capital is being invested in clean tech than in telecommunications,’ added the former Hollywood star.

But, warns Solarcentury’s founder, Jeremy Leggett, the UK is at serious risk of falling behind – raising problems for home-grown businesses and for meeting international promises to cut greenhouse gas emissions.

The story of renewable energy is itself almost bubble-like. When Solarcentury started in 1999, selling photovoltaic panels (which collect sunshine to generate electricity), experts predicted 1.5GW of solar PV power would be installed by 2010; that figure is now forecast to be 15GW. Taking all renewable energy sources into account, the European Commission has proposed that by 2020, one fifth of all energy should come from ‘clean’ sources, such as wind, solar PV and tidal power.

These are giddy figures, but Leggett believes they still might underestimate the potential of ‘clean’ energy to replace oil, coal and gas: ‘When the history books are rewritten, people are going to be amazed at how fast these technologies broke through into fossil fuel markets.’ What gives Leggett confidence are the growing science of global warming and climate change – and greed.

Leggett began to worry about global warming when he was working as a research geologist at London’s Imperial College in the Eighties, including doing work funded by oil giants such as BP and Shell. ‘That’s what led me to early concern about global warming: simply studying the ancient climate system from the bottom up over really long time periods. I started thinking, we’re putting all this stuff – carbon from fossil fuels – into the atmosphere in a geological nanosecond. We are forcing the temperature up with no time for ecosystems to adapt.’ When the first climate models were published, Leggett left academia and went to work for Greenpeace for a decade, before leaving to set up Solarcentury. Frustrated with empty government promises, he – like other businesses – wanted to do something to reduce greenhouse gas emissions, before it was too late: ‘Climate change, that’s our raison d’etre.’

Nowadays, though, clean technology is appealing to a much broader audience, says Leggett: ‘Increasingly… there is a preponderance of people who just smell the money, and that has to happen if we’re going to defeat this monster.’ Every time global manufacturing output doubles, costs fall by 20 per cent, he claims.

Driven by concerned staff, government incentives and threats of regulation, many businesses and investors recognise they can make money by switching to, or investing in, clean technologies like renewable energy and energy-saving devices. This, in turn, is fuelling a spiral of rising demand and more funds to invest in supply, which is bringing down the cost of production, bringing it within the reach of more customers. Solarcentury estimates, for example, that the cost of manufacturing solar PV panels in the two biggest markets, Germany and Japan, has halved since 2000.

For many environmental campaigners, the idea that climate change can be solved by money-greedy capitalism is uncomfortable. But Leggett is encouraged, for example by fellow directors of the world’s first private equity renewable energy fund, Bank Sarasin’s New Energies Invest AG: ‘My colleagues are lovely guys but they are not quite so motivated as I am [by climate change]; to watch them get so excited lights a great big candle of hope.’

Increasingly, he predicts, the two issues – social responsibility and private greed – will become mutually dependent. ‘In a few years… companies are not going to be successful without engaging meaningfully: [they] won’t win trust of consumers, they won’t be able to hire highly motivated employees.’

In this vein, Solarcentury’s 10 ‘working principles’ include politically correct headlines like ‘environmental’, ’social’ and ‘participation’, but before those, at number two – after ‘products’ – is ‘profitability’. ‘We pursue robust year-on year-growth and significant returns for our investors,’ it explains. ‘Achieving our mission will be impossible without such profitability, and we believe that the sum of all our other business principles increases our chance of achieving it.’ Can a business make ‘too much’ profit? ‘I’d love to have that problem,’ laughs Leggett. ‘It’s a question of what you do with the profit, how you invest it.’

Until now, too much profit has not been the problem. Solarcentury has only made an operating profit in one year (when it gave 5 per cent to set up a charitable trust, SolarAid, to ‘relieve poverty through provision of solar energy’); since then it has invested more in research and development than it has been generating, despite rapidly rising sales. This year the company’s turnover is expected to be more than £20m, half from private homes, half from businesses.

Despite the global hoopla over renewable energy the UK market is struggling, says Leggett. Currently the UK generates about 4 per cent of electricity from renewable energies. The EC has also warned that it is one of the countries that will not meet its pledge to generate 12.5 per cent by 2010, and the government has indicated it may apply for a target of less than the EU-wide average of 20 per cent by 2020. Wind, for example, accounts for less than 1 per cent of installed power in the UK, compared with 18 per cent in Denmark, 8 per cent in Spain and 6 per cent in Germany. And things are going backwards: this summer demand for micro-renewables – wind, solar and other power for homes – plummeted after the maximum grant available was cut.

The UK is falling behind for two reasons, says Leggett: there is too little funding, and it’s too unreliable. ‘Companies need scale, industrial scale,’ he says. ‘We footle around with the odd million here or there, a few tens of millions. There’s no seriousness of intent, and it’s worse than that because in the UK they turn the tap on and off; there’s no continuity, no reliability, and this in turn makes business planning close to impossible, and puts investors off.’

He, like others in the industry, wants two things: more government financial support, and a reform of the way it’s done. Currently government relies on renewable obligation certificates, which generators of carbon-free energy can sell to subsidise their income. Critics want this system changed to ‘feed in’ tariffs, whereby energy companies pay homes and companies with renewable energy devices to sell back spare electricity to the national grid. In Germany, the scheme is credited with a huge uptake in micro-renewables, and creating 20,000 jobs. The government’s own Carbon Trust has also calculated that switching to the feed-in tariff system would greatly increase renewable power and save electricity customers £3bn.

Leggett switched from campaigning to business because he was fed up with governments talking about climate change but doing little to tackle it. He has found government is still the greatest obstacle, but he has not given up hope. ‘This is something worth fighting for,’ he says. ‘The key is to get the money sensible. I’m cautiously encouraged there are signs that serious money is being awakened.’