It is no secret that major investment is needed across the energy sector for the United Kingdom to meet its COP26 obligations for net zero emissions by 2050. And, with the government’s Balanced Net Zero Pathway (BNZ) dedicated to decarbonising the energy sector by 2035, a full decade and a half ahead of the wider UK economy in 2050, much more needs to be done.

Recent figures from the Department of Business, Energy, and Industrial Strategy has accounted that 405.5 million tonnes of CO2 was emitted in 2020, of which 21% was from energy supply. This is significantly lower than the levels recorded at the time of the Kyoto Protocol, yet the UK, like many developed countries, is experiencing an increasingly high demand for energy, at odds with its net zero commitments to decarbonise.

Figures from McKinsey estimate that the demand for electricity is expected to triple by 2050. Across industry and manufacturing, public transit and private transport, electronic and technology usage (including vast consumer demand to transmit data), not to mention heating and cooling the homes of an ageing population in a country with increasingly volatile weather patterns, there is significant challenge being faced.

With war in Ukraine and associated geopolitical tensions forcing energy prices ever higher and raising serious concerns about the security and stability of supply, the question of how we transform the energy sector towards net zero has never been more poignant.

Short-term thinking leads us on a dash-for-gasBut, while this can be a transitory measure, if we want to drive down energy prices for consumers and industry for good, while also decarbonising, meeting our climate commitments and ensuring security of supplyit is vital we take a longer view.

An holistic approach to driving net zero

Todaythe energy that sustains us and the infrastructure that delivers it has become unsustainable. The majority comes from fossil fuels and the majority of energy is lost before it ever reaches us.

The fundamental ethos driving the investment strategy at TEEC is the belief that a sustainable energy system requires a holistic approach across the entire sector, in three key areas.

Firstly, we must move away from a centralised system of generation powered by fossil fuels to a decentralised system built on renewables and, crucially, located as close as possible to centres of demand.

Secondly, as the energy flows from generation, we must invest in energy storage and distribution to balance increasingly volatile and unpredictable supply and demand profiles. Last year, enough energy from wind alone to power one million homes was lost though inefficiencies andcurtailment.

Finally, we must do what we can to reduce demand for energy from consumers and industry. We must use less energy and what we do consume must be used as efficiently as possible. This means improving the efficiency of our building stock through retrofit or installing energy-efficient light bulbs and other appliances. Encouraging on-site generation through technologies such as rooftop solar panels will also mean homes and businesses can supplement their energy needs and reduce demand from the system.

This whole system approach, from supply through to demand, is reflected in our portfolio.

TEEC currently holds a portfolio of nine hydroelectric assets across the Scottish Highlands; four geographically diverse battery energy storage systems (BESS) with a combined capacity of 110MW, and; a Combined Heat and Power (CHP) asset in the northeast of England, providing heat, power, and carbon dioxide to a major UK food supplier.

Our strategy in action is illustrated by a major investment made last year, when TEEC bought Spark Steam, a CHP provider in Teesside which is located next to and provides heat, power and carbon dioxide to APS Groupthe country’s biggest grower of tomatoes. The heat supplied to APS by Spark Steam allows them to regulate the temperature and humidity to create the perfect growing environment in the glass houses. But, by also using carbon dioxidethe main waste product produced during generation, it can help APS increase their crop yield by as much as 20%, and the CO2 which would otherwise have been contributing to the UK’s GHG emissions, is put to good use.

2050 or 2030

The IEA argues that advanced economies, like the UK, should move faster in driving net zero progress. Its roadmap for the global energy sector concluded that reaching net zero by 2050 hinged on an unprecedented push towards clean technologies by 2030, which requires an “immediate and massive deployment of all available clean and efficient energy technologies.”

Investment trusts like ours, that invest in technologies and solutions across the energy mix, from generation to consumption, are key to achieving this.

That is starting to happen and, as a result, investment into clean energy technologies is rising. With returns often contractually linked to inflation, these investments offer an attractive inflation hedge to institutional and retail investors alike, over long periods.

Against a backdrop of rising inflation and geopolitical instability there has never been a better or more important time to invest in our secure, clean, low-cost energy futureIn order to enable the transition to net zero, taking a holistic, system-wide investment approach to lowering emissions across the whole energy system is needed, from generation to distribution to consumption.

This article was originally published in Energy Management

Jonathan Hick is an Investment Director at Triple Point Investment Management, and fund manager of the Triple Point Energy Efficiency Infrastructure Company (TEEC), an investment trust that works to support the transition to net zero by investing holistically across the energy sector, in order to deliver a diversified and attractive income for investors. Find out more about TEEC

Potential investors should refer to the information within the Prospectus which is available via the Documents section of the website and must only subscribe for or purchase shares in Triple Point Energy Efficiency Infrastructure Company PLC on the basis of information contained within it. As with all investments investors capital is at risk. Target returns may not be achieved and investors may not get back their full investment. Any references to past performance and expectations for the energy efficiency infrastructure market should not be taken as a reliable guide to future performance.