Investing in Wind Power

Sometimes, it seems as if the decarbonisation of power generation is so well advanced, notably in a country like the UK, that we can all sit back and relax — or rather, focus on other pressing priorities.

However, with global carbon emissions continuing to rise to new records and the impacts of climate change becoming ever more menacingly obvious, urgent action is needed — and no stone must be left unturned. Anything that can accelerate the transition to zero carbon energy must be done.

In this article, we focus on large scale wind power. Installed capacity is growing fast globally, fuelled by ever more competitive costs. In a fast-growing list of countries, deploying onshore wind power is now cheaper than fossil fuel-based electricity.

If we are to entirely decarbonise electricity over the coming decades, as we must, wind power has an essential role to play, alongside solar, and investments in new wind capacity must accelerate. Further reductions in the cost of wind power are essential to motivate large utilities and infrastructure funds to increase their investments in the sector.

This is particularly true in offshore wind, which has massive growth potential but where more work remains to be done to ‘ride the cost curve down’ — and making offshore wind more competitive requires efforts on many different fronts, including cutting the costs of the many components of the turbines but also improving the overall efficiency of wind farms and optimising the operations and maintenance costs.

For Green Angel Syndicate, each of these challenges represents an opportunity to invest in innovative companies bringing solutions to the table.

This is the occasion to showcase two companies in which we have invested, helping to deliver such game changing improvements: GreenSpur, with its disruptive generator technology; and Rovco, tackling the offshore operations and maintenance costs.

We see a great variety of opportunities in this growing market, and we are continually on the lookout for more such innovations that will help achieve the world’s decarbonisation targets whilst delivering fantastic returns for early stage investors.

This vision is also one of the key reasons why, since 2018, Green Angel Syndicate has partnered with Offshore Renewable Energy Catapult in delivering a programme linking innovators, potential investors and clients.

Urgent action needed — Leave no stone unturned

Extreme weather events are becoming more common around the world, from hellish forest fires to record-breaking tropical storms, calamitous droughts and deadly floods — and scientists tell us that this is just a glimpse of the expected impacts of global warming, as greenhouse gas concentrations are continuing to grow unabated, reaching record levels.

To stand a chance of the global average temperature not increasing by more than 1.5°C above pre-industrial levels, the time has passed to ask which emissions we should tackle first. We need to tackle them all, as quickly as possible. The burning of coal and gas to generate electricity is one of the largest sources of CO2 emissions globally and so, the transition to renewable energy is, as ever, central to tackling climate change.

Wind power – already so big…

Power generation from the wind is not a new thing, and wind turbine technology is in many ways a mature sector. Rolling out wind turbines relies on billion-dollar projects involving massive orders to large industrial corporations, financed by big banks and infrastructure funds. These large investments are happening and angel investors have no role to play there.

In advanced countries like the UK, wind farms have moved from a niche source of electricity a decade ago to a cornerstone of the power mix.

…but still so little

However, to tell the truth, renewable energy is still in its infancy, representing around 28% of global electricity production, with wind power at around 5%.

It is therefore no surprise that, under all scenarios looking at how to achieve the necessary cuts in greenhouse gas emissions, enormous growth in wind power capacity is needed. For example, IRENA expects onshore and offshore wind to contribute to 36% of global power generation by 2050, implying a multi-fold increase in installed capacity over the coming decades.

Costs are falling, and must continue to do so…

For the pace of installations to accelerate as much as is required, one key ingredient is for the wind sector to continue leading the way in terms of cost competitiveness, making its economic case more and more compelling to energy utilities and infrastructure investors as time goes by.
The ‘levelised cost of energy’ (LCOE) for wind generation has already dropped dramatically over the past decade — falling from an estimated $135/MWh in 2009 to $42/MWh in 2018, according to Lazard.

Photo by Mary Ray on Unsplash

…in particular in offshore wind

Offshore wind power is still a niche compared to onshore, with installed capacity growing but still standing for less than 5% of global wind capacity.

A key reason for this is that the costs are much higher, with an LCOE estimated at $140/MWh in 2017. This reflects the fact that offshore wind faces unique challenges related to working at sea, leading to higher construction and operation costs — both higher capex and opex. Key elements of the cost structure which are higher at sea include:

  1. The foundation and support of the wind turbine.
  2. The construction and installation.
  3. The transmission system.

However, there are also some clear advantages in working at sea, with average wind speeds higher than those on land, and fewer obstacles which can cause turbulence — so offshore wind power could theoretically be more efficient than onshore wind power.

Cost reduction opportunities are great angel investment opportunities

The LCOE of offshore wind is falling quickly — with some power purchase agreement prices for installation in 2021–2022 down to $60/MW — and this reflects the efforts made by players all along the value chain to improve the competitiveness of offshore wind.

These efforts includes improving the yield of wind farms (i.e. the capacity factor), which enables the installed capacity to deliver ‘more bang for their buck’. Another one is simply to achieve reductions in the cost of each component of a wind power project — including the capital cost of the installed turbines and the operations and maintenance cost of the wind farm once it’s installed.

For us at Green Angel Syndicate, each of these challenges is an opportunity to invest in innovative companies trying to bring solutions.

We have already started investing in companies which help delivering such improvements — for example GreenSpur, which brings disruptive generator technology; and Rovco, which has the potential to reduce offshore operations and maintenance costs. These are just two examples of companies developing technologies that will contribute to making wind power, in particular offshore wind, even more competitive over the coming years.

At Green Angel Syndicate, we see a great variety of opportunities in this growing market, so we remain very much on the lookout for more such innovations that will help achieve the world’s decarbonisation targets whilst delivering fantastic returns for early stage investors.*

*Risk disclaimer: Investment in early-stage companies involves risks such as illiquidity, lack of dividends, loss of investment and dilution. Even when diversified within a fund, investing in early stage companies carries a higher risk than investing in more established companies. Investment in EIS and SEIS funds should be considered as part of a diversified portfolio. For professional investors only.

Antoine Pradayrol is a Director of Green Angel Syndicate. He is a Cleantech expert and Angel Investor. Formerly head of telecoms equity research, Exane BNP Paribas, Antoine provides analysis on smart cities, mobility, green & clean tech and ed tech. Follow Antoine on LinkedIn and Twitter.

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