Big business can work alongside government – just look at the success of clean energy

While we wring our hands about the collapse of Carillion, indeed a shocking tale, we fail to notice a business success of far greater importance – and one where the Government has also played a leading role. I refer to the fall in the price of energy derived from renewable sources such as wind power, bio energy (which comes from biodegradable waste, food waste and animal manure), hydroelectric power and solar panels.

An international report published earlier this week stated that all renewable technologies will be competitive with energy derived from traditional sources such as coal, oil and natural gas by 2020. This would be an historic event, foreshadowed by the National Grid’s announcement in April that Britain had recorded its first full day without coal power “since the Industrial Revolution”. A combination of low demand for electricity and an abundance of wind meant the grid completed 24 hours relying on just gas, nuclear and renewables.

Of course, what I have noted here about British energy developments is being experienced across the industrialised world – with variations such as the development of shale oil in the United States. Germany, Denmark and Spain have led the way in implementing innovative policies that have driven most of the growth over the past decade.

As the major consumers of energy become more self-reliant, so an even more significant event is likely to follow: a sharp diminution in the role of the countries in the Middle East in energy markets.

No wonder Crown Prince Mohammed bin Salman had felt it necessary to plan to reduce Saudi Arabia’s dependence on oil, diversify its economy and develop public service sectors such as health, education, infrastructure, recreation and tourism. The first details were announced in April 2016.

What is bringing about this sharp fall in the cost of energy from renewable sources? There has been substantial technological innovation and the concerns about climate change have added urgency. But governments have also, out of necessity, played a role, for their support is often essential in the early stages of developing new technologies. The computer industry and the internet benefited in this way. The problem is the so-called “valley of death” – the gap in funding between research and development and commercialisation.

In the UK, there are several schemes that provide financial support for renewable energy. The Renewable Obligation (RO) requires suppliers to source an ever-increasing amount of their electricity from renewable sources. The RO rewards renewable output over the lifetime of a project.

Then there is the Feed-in Tariff (FiT). It is designed to support small scale renewable installations up to 5MW. Through FiTs, generators are paid a tariff for every unit of electricity they produce. Any electricity not used on site can also be sold back into the grid, and generators are paid extra to do this.

But as the International Renewable Agency argues in a recent report, the chief driver of renewable energy is its strong business case, which offers increasingly exciting economic opportunities. “The rate of cost reduction has been wholly impressive.”

Solar photovoltaic (PV) modules are more than 80 per cent cheaper than in 2009. The cost of electricity from solar PV fell by almost three-quarters in 2010-2017 and continues to decline. Wind turbine prices have fallen by around half over a similar period, depending on the market, leading to cheaper wind power globally. Onshore wind electricity costs have dropped by almost a quarter since 2010.

At the same time, procurement has sharpened up with the wide-spread use of auctions. Indeed, the renewables industry now finds itself in a virtuous circle. Global competition has led to increased purchasing power and access to international financial markets.

In sum, this is a remarkable story. The development has been very swift – thus far 10 years from start to finish. By reducing a key cost borne by households and businesses alike throughout the world, it has provided a truly enormous benefit in terms of the welfare of millions of people. And it points to a solution to the problem of global warming. It is an inspiring story that deserves to be celebrated.