The UK government has been on a steady path towards lessening its dependence on fossil fuels and embracing cleaner energy sources in recent years. Coal generated just 1.6% of the nation’s electricity in 2020, down from 25% just five years ago. The nation boasted over 5,000 hours of coal-free power operations last year, in a year that broke records for the lowest carbon intensity of generation.
This green energy success has offered fertile ground for energy operators, and provided remarkable opportunities for successful international expansion by industry players such as Malaysia’s TNB.
“Robust policy support in the UK continues to drive renewable energy’s strong growth and resilience”
“Robust policy support in the UK continues to drive renewable energy’s strong growth and resilience,” said Shahazwan Harris, Chief International Officer of TNB’s International Asset Group, talking to Energy Watch recently. “We realised the importance of venturing offshore, in particular in the renewable portfolio.”
The UK’s green energy success has created valuable opportunities for TNB’s UK-based renewable energy portfolio, with assets performing well above expectations according to Shahazwan Harris, reflecting a wider trend in green energy investment.
“External factors from financial institutions and sustainability investors put a growing focus on environmental sustainability goals, helping renewable energy gain market share particularly in more advanced markets such as the UK, US, and EU.”
In the UK, robust policy support continues to drive renewable energy’s strong growth and resilience, backed by attractive long-term support schemes that ensure operators are incentivised to drive forward renewable adoption.
A market for growth
The UK market offers a welcome framework for expansion for an operator like TNB, building on domestic experience to grow its global footprint beyond a limited local market.
“With almost 100% of electricity coverage in Peninsular Malaysia, TNB’s domestic market share growth is already reaching saturation point. This will come under pressure in future due to competition and changes in market rules and regulation. Tenaga recognises the need to change and is pivoting its international growth strategy towards renewable energy,” said Shahazwan Harris.
The accelerating global energy transition provides a fruitful catalyst to TNB’s transformation, leveraging the shift towards sustainable, low-carbon energy sources. Shahazwan Harris also highlights how diversifying internationally helps “build strategic capabilities to enhance TNB’s competitive advantage.”
Diversification isn’t just a platform to access the success of the UK’s energy market, but also works to build our talent and expertise to embrace the wider opportunities of the energy transition. This offers a pathway to ensure TNB remains competitive, at the same time maximising profitability and shareholder value, and delivering sustainable long-term earnings growth.
Sustainable success in the UK energy market
The UK offers a welcome template for the potential of renewable energy to transform the cost and carbon output of the power sector. Not only has this transformation dramatically reduced carbon emissions, but it has shown clear cost benefits, with offshore wind, onshore wind, and large-scale solar all now expected to have significantly lower levelised cost of energy (LCOE) than gas by 2025. Contracts awarded in 2019 already show offshore windfarms priced below existing costs for gas-fired power generation.
What has been particularly fascinating about the UK’s journey is how the benefits of renewable adoption accelerated as penetration and technical experience grew. The UK Government’s own predictions for the LCOE of renewable energy have been dramatically cut over recent years, as a clearer picture of generation costs emerged.
In 2013, the UK Government predicted that by 2025, the LCOE of offshore wind would reach GBP140/MWh. By 2020, emerging evidence had significantly cut that cost, with the latest predictions suggesting offshore wind will have a LCOE of just GBP57/MWh by 2025. Onshore wind and solar have both echoed this dramatic predicted reduction in generation costs, with large solar now expected to be generating at an LCOE of GBP44/MWh by 2025 — half the expected cost of gas-fired power generation in that year.
“The main driver behind this change is that renewable energy technologies follow learning curves, whereby with each doubling of the cumulative installed capacity their price declines by the same fraction. On the other hand, the price of electricity from fossil fuel sources does not follow these same learning curves, so it is expected that the price difference between expensive fossil fuels and cheap renewables will become even larger in the future,” said Shahazwan Harris quoting the Our World in Data report.
These cost reductions are not unique to the UK, but reflect a wider trend in renewable energy generation around the world. The average global cost of solar power has reduced by 89% over the last decade, and onshore wind by 70%, framing a world where renewable energy increasingly looks like a more cost-effective long-term solution for power generation.
Building on green growth
The significant reduction in cost forecasts shows how committing to a green energy journey can unlock even greater benefits through improved economies of scale, creating a more cost-effective solution for future power generation needs.
“It also has a big benefit for the community… falling energy prices means that people’s real income is growing”
“TNB strongly believes in the huge growth potential of international renewable assets, as the world shifts to more sustainable energy sources with steady yield and lower financing cost. The renewable energy market globally will continue to grow, especially within our focus markets of the UK and EU, as well as in Southeast Asia,” said Shahazwan Harris.
With its investment in the UK, TNB is not only positioned to leverage the potential of these evolving technologies, but garner lucrative experience of the technological and financial pathways to success for renewable power generation.
“The key to a green, low-carbon future is driving down the costs of renewables. It also has a big benefit for the community… falling energy prices means that people’s real income is growing. In addition, falling energy prices also imply economic growth and reduced poverty,” said Shahazwan Harris quoting the Our World in Data report.