What we know about renewable energy – current trends, challenges

In response to the Paris Agreement, the UK has pledged to bring greenhouse gas emissions to net-zero by 2050, becoming the first major economy in the world to pass net-zero emission laws. The UK’s ability to reach its goal will be highly contingent on its ability to reduce emissions stemming from homes and offices, driving cars, growing food and energy generation.

 Figure 1 by the Energy Saving Trust provides an understanding of the scale of this goal, with the heating of buildings through the burning of fossil fuels and use of natural gas being the greatest contributor to current UK housing emissions. The transport sector is the second largest emitter. 

Figure 1: UK average household CO2 emissions in kg based on Energy Systems Catapult analysis (From Energy Saving Trust)

At present, carbon capture, utilisation and storage (CCUS), is an important emissions reduction process but with carbon removal technology showing slow progress, CCUS is seen as less effective than rapidly progressing and scalable forms of renewable energy such as wind and solar.

 But, for the 2050 net zero targets to be reached, renewable energy needs to be used on a much larger scale, providing a sustainable source of heating for homes whilst reducing heating emissions and increasing energy efficiency. What’s more, renewable energy should play a wider role in the electrification of vehicles as well as transport fuelled through hydro and biofuel. 

In this blog we will delve deep into renewable energy, with a focus on wind energy and its main uses. We will assess the underlying funding and insurance mechanisms before finally looking into the potential risks and barriers to adoption. 

The “Build Back Greener” targets

Last month, the Prime Minister set out new plans to Build Back Greener with a vision to make the UK the world leader in wind energy. An investment of £160 million will be made available to upgrade ports and infrastructure across communities in England, Scotland and Wales in a bid to expand the UK’s offshore wind capacity, which is already the largest in the world. The funding is intended to create tens of thousands of jobs both directly and indirectly, while reducing carbon emissions. 

In the new plans, the government’s previous 30GW wind energy capacity target is proposed to raise up to 40 GW by 2030 to fulfil the Prime Minister’s ambition to power every home in the country with wind energy (calculation based on current household electricity usage). In response to the target, a few days ago, a multimillion-pound underwater energy “superhighway” was agreed to be built by Scottish Power, National Grid and SSE to bring Scottish renewable energy to homes in England. 

According to the UK renewable energy planning database, there are 737 onshore wind farms in operation across the UK with 13,327MW electricity capacity plus 41 operational offshore wind farms with 9,693MW capacity – the largest in the world. This gives a total maximum operational capacity of over 23 GW of electricity in the UK according to Statista.

The 1.2GW Hornsea One offshore wind farm, comprising 174 large 7MW turbines, is currently the largest in the UK. In order to achieve its 40GW offshore wind capacity target, the UK needs to build at least 25 more Hornsea sized offshore wind farms, or 60 more 500MW capacity medium sized offshore wind farms. In other words, more than 2,400 large turbines with 7MW capacity have to be built in the next 10 years, a huge feat.

The ‘world’s largest wind farm’, Dogger Bank Wind Farm is currently under construction off the Yorkshire coast. With the world’s largest wind turbines (Figure 2), its capacity can reach 3.6 GW.

Figure 2: How big is the world largest wind turbine? (Source: The Guardian)

Government policies and initiatives

Over the last decade, the UK government has set up a series of funds and policies to support the renewable energy industry, such as renewable energy innovation funds,  smart energy systems fund, Clean Growth Fund, Urban Community Energy Fund. To encourage domestic small renewable energy generation, the UK government has also opened a number of incentive schemes such as Smart Export Guarantee,  Feed-in Tariffs (now closed) and the Domestic Renewable Heat Incentive (RHI) which offer homeowners money towards the electricity they generate as well as towards the renewable heating costs of their home. 

As a result, the UK has made great progress in its low-carbon energy transition. In the first two quarters of 2020, 47% and 44.6% of the UK’s electricity generation have been from renewable energy sources, a 10% increase from the same period in 2019 (Figure 3), within which wind energy occupied 20.6% contribution, nearly half of total renewables.

Figure 3: Percentage of total electricity generation by renewable energy technologies in the UK in the 2nd quarter of 2020 (Source: BEIS)

Where is the industry?

Figure 4: UK Renewable energy industry distribution map

A map showing distribution of various renewable energy technologies that are either active, in construction or awaiting construction in the UK, based on the 2018 Renewable Energy Planning Database Monthly Extract from the Department for Business, Energy & Industrial Strategy (BEIS) can be found here (created by Andrew Crossland). On the map, renewable energy technologies are grouped into wind, solar, hydro, geothermal, energy storage and other renewables.

Challenges in the sector

Growing public awareness of climate change issues and the emergence of net zero targets, rapid advancement of technologies, favourable government policies, incentive schemes and rising investment interests have largely spurred on the growth of renewable energy on a global scale. However, the renewable energy sector is still facing significant challenges from political, financial, environmental and social pressures.

Renewable energy sources are mostly dependent on natural resources that are not controllable by humans such as solar radiation, wind, and waves. For example, the strength of wind and sun may change quickly and are not always available. This leads to energy availability and power stability issues.

Very specialised new technologies at various development phases are involved in all stages of renewable systems. They can be very expensive. Some projects remain vulnerable to mechanical and electrical breakdown in a period of continued technical innovation.

Renewable energy plants are often sited in areas more exposed to natural disasters, e.g. offshore with greater frequency of wind and waves in coastal environments. These sites can become increasingly vulnerable under the impacts of climate change.

● Long-term growth of the renewable energy sector relies on consistent long-term government incentives to encourage investment.

Insurance to transfer risks and support investment

Unlike low carbon, renewable energy is not risk free. Insurers are experts in measuring and managing risks. With their unique insight into the challenges and opportunities facing the industry, they play a crucial role in providing effective risk management, manufacturers’ support and security for investment in the renewable energy sector.

Take wind energy. Through providing financial protection to risks from ocean transit, delays or damages during the fabrication, transport and construction stages, breakdown or business interruption during operation to liability associated with third parties, the insurance industry supports investment for the renewable energy industry to maintain its long term sustainable development.