EU natural gas prices increased by 80 MWh to 340 MWh[i] in the 12 months after tankers crossed the border into Ukraine. The increase in the price of gas in Europe and the expansion of electricity in Europe are boosting investment in renewable energy. Despite historically low Russian gas imports, the UK is no exception to this trend.
While the UK's electricity grid is one of the cleanest in Europe, with renewables accounting for 42% of the national grid's electricity supply[iii], further conversion to the grid is still needed. With increasing pressure from governments, consumers and stakeholders, Europe's clean energy transition is estimated to require an investment of $5.3 trillion by 2050[iv] . Britain already occupies a leadership position in offshore wind energy. In 2019, the UK's approximately 2,600 offshore wind turbines accounted for 45% of all European offshore wind energy and a staggering 33% of global offshore capacity . Now is the time for solar energy in the sun.
Investments in solar panels and other renewable energies
Even in a country known for its inclement weather, the investment climate for solar energy continues to improve. According to the International Renewable Energy Agency's (IRENA) World Energy Outlook 2021[v], renewable energies such as solar and wind are now the cheapest source of electricity[vi]. Massive investment and growth in solar panel manufacturing drove prices down 82% between 2010 and 2020. Falling material costs and improved panel efficiency have greatly boosted production and the economy general solar energy. This is clearly seen in Residential Solar Rooftops, a 4kW battery-powered system that covers the electricity needs of an average UK household and pays for itself in 7 years[viii].
While predicting the exact economic performance of an individual solar panel is closer to art than science, solar panels offer much more than just cost benefits. The adoption of rooftop solar systems to improve the EPC rating of UK buildings, such as North Lincolnshire Homes, Fold Homes Association and Wales & West Homes[ix], demonstrates the environmental and social benefits of solar energy. Other outstanding benefits include improved solar billing and metering services, paving the way for more residential buildings to use solar infrastructure. This is demonstrated, for example, by Alume Energy's recent solar installations at the Wells and West developments in Cardiff[x]. But all is not guaranteed: Out-of-stock supplies exacerbated by Covid-19 and lengthy installation delays can keep homeowners from installing solar panels for months.
Includes finding solar panel suppliers.
Indeed, tracking the sources of components (solar modules) and raw materials (polysilicon) from European panel suppliers is disrupting supply chains. China, which produces 70% of silicon and 83% of solar modules[xi], has played a major role in significantly reducing the cost of solar panels. This is partly due to high government subsidies to polysilicon producers and low electricity costs. However, there is something more sinister behind this miraculous solar material.
Chinese Xinjiang solar materials have been subjected to forced labor and forced labor by Uyghur Muslims.
In May 2021, a study by Sheffield Hallam University[xii] found that Chinese solar materials in Xinjiang were subjected to forced labor and forced labor by the Uyghur Muslim minority. Based on this study, Zamo Capital estimates that approximately 8% of the global procurement of polysilicon and 5-10% of the global procurement of solar modules is directly through forced labor. The real challenge lies in tracing materials through different stages of the supply chain. "Dirty" materials can be mixed with "clean" materials, hiding the origin of the base material and effectively whitening the final product.
Survey on forced labor in the solar energy supply chains
At Zamo Capital, we have observed two main trends in the presence of forced labor in the solar supply chain.
- Reduce dependence on Chinese solar materials supply
- The first was an attempt to reduce our dependence on solar supplies from China by providing clean and transparent supplies, such as the Ukrainian conflict pushing for energy independence from Russia. This is reinforced by Biden's policy of massive investments in renewable energy in the United States: the Cut Inflation Act, which allocates $430 billion[xiii] in federal funds to support the transition to own energy. Europe has contributed to this through the Industrial Green Deal plan presented to the European Commission in early February 2023.
- Pressure to clean up our supply chains
- The second trend is a concerted effort to clean up our supply chains through better oversight, transparency, and sanctions against bad actors. Joe Biden's Uyghur Mandatory Labor Protection Act, passed in December 2021, is an important issue for promoting transparency in the supply chain. Europe lags behind the United States in the effectiveness and thoroughness of its legislative agenda. In February 2022, the European Commission released the Corporate Sustainability Due Diligence Guide[xv] in response to the Uyghur Law on Prevention of Forced Labor. The directive is very modest and will be implemented in two years and will apply only to large companies.
The references
- [i] Trading Economics, natural gas EU Dutch TTF Feb 24 Price €80/MWh (before invasion), vs €340/MWh Aug 29 2022, 4.25x, Trading Economics Link
- [ii] Eurostat, "What is the share of renewable energy in the EU?", 2020 data, Eurostat Link
- [iii] National Grid Statistics, Q4 2021 data: Wind 26.1%, Bioenergy 12.7%, Solar 1.8%, Hydro 2.1%, National Grid Link
- [iv] World Economic Forum, “How much will it cost Europe to switch to clean energy by 2050? », April 27 , 2022 Link World Economic Forum
- [v] International Renewable Energy Agency, 'Most new renewables to outstrip cheaper fossil fuels', 22 June 2021, link to IRENA article
- [vi] International Energy Agency, World Energy Outlook 2021, World Energy Outlook Report 2021 Links
- [vii] International Renewable Energy Agency, "Most New Renewable Fuels Cheapest Fossils", 22 June 2021, IRENA Article Link
- [viii] The Guardian: £ Solar panels: How to regulate energy bills when the sun comes up, 20 August 2022 Link to Guardian article - 'A 4kW system suitable for the average home should use around 3,500kWh (kilowatt hours) of energy per annum Electricity across much of the UK At the time of writing, the average cost of a 28p unit of electricity is £980 per kilowatt-hour of 3500 kilowatt-hours of production you pay £7000 for an installation, theoretically it would pay for itself in seven years Note : Average prices range from 37p up to.
- [ix] Various UK Housing Association opinions: North Lincolnshire Housing Link, Fold Housing Association Link, Berwickshire Housing Association Link and Wales & West Housing
- [x] Alume Energy, Press Release , February 14, 2023, “World's First Solar Technology Game Changer to Bring Clean, Affordable Energy to Apartments,” Alume Energy Link
- [xi] Analysis by Zamo Capital, based on research from Bloomberg, Sheffield Hallam University, Bernreuter Research and Statista
- [xii] Sheffield Hallam University and Helena Kennedy Center for International Justice, "In Broad Daylight: Uyghur Forced Labor and the Global Solar Supply Chain", link in Broad Daylight Report
- [xiii] Senate Democrats, Cut Inflation Act One Page Summary, IRA 2022 Summary Link
- [xiv] Ernst & Young, European Commission “Green Deal Industrial Plan for a Net-Zero Era”, February 7, 2023, published the summary proposal of the link to the Green Deal Industrial Plan.
- [xv] European Commission, “Guidelines for a fair and sustainable economy”, Guidelink press release
By Chris Holcroft, Senior Partner, Zamo Capital
