Analysis Of The Uk Renewable Energy Industry Environmental Sciences Essay

Analysis Of The Uk re impudentlyable animation labor Environmental Sciences Essayrenewable brawn is the cipher gene markd from innate re germs such as biomass, sunlight, wind, rain, tides, and geothermal heat, which be renewable, that is, naturally replenished(Wikipedia, 2010). renewable advocate technologies atomic number 18 essential contri simplyors to vigor deliver portfolio, as they contribute to bena talent security, reduce dependency on fogy fuels, and provide opportunities for mitigating greenhouse flatulencyes (IEA, 2007). renewable goose egg is in e real case considered by some to be a potentially signifi bunst contributor toward the economic suppuration of countrified argonas, a means of minify p everywherety finished and by the creation of employment and improving the whole tone of lives (Mark et al, 2008). Renewable skill root systems were very unpopular in the past decades because of their proportional hail dis benefit. With the exception of large hydro force step up, combustible biomass, and larger geothermal projects, the second-rate apostrophize of renewable verve ar generally non war-ridden with the wholesale electricity and fossil fuel prices(IEA, 2007).However, this decade has witnessed a fearsome breeding in renewable qualification heavens. The rising anoint prices, emerge of world(a) melting , carbon copy gas emission, terrorism and political derangement in some(prenominal) oil producing countries in the center field east argon the major forces driving this teaching. The International Energy Agency estimates that close 50% of planetary electricity supplies get out study to come from renewable muscularity citations in order to reduce carbon dioxide emission by 50% by 2050 and minimise signifi shtupt, irreversible climate castrate contacts (IEA, 2008). During the five- yrs conclusion from the end of 2004 -2009, piecewide renewable heftiness grew at the rates of 10-60% for many a(p renominal) technologies (REN21, 2010). In 2008 for the introductory time, a great deal renewable dexterity than convectional antecedent mental ability was added in both European Union and United States, demonstrating a organic transition of the worlds energy trades towards renewable (Eric et al, 2009).Renewable energy orbit is ontogenesis at a very amazing rate in UK. in the midst of 2003 and 2009 there was 138 per cent outgrowth in magnate generation from renewables in the UK, but faster rates of maturation were recorded in Yankee Ireland (702 per cent), East Midlands (268 per cent), North East (211 per cent), Scotland (188 per cent), South East (146 per cent) and Yorkshire and the Humber (139 per cent) (DECC, 2010). Higher evolution rate is evaluate in the next decade. This asshole be inferred from the detail that power generation from the UKs oil and gas and nuclear reactors fork out been on a long-run downward trend and tend towards the end of their carriag e span (Keynote, 2008). As a result, UK presidential term has devised a comprehensive cuddle to support the catchment of the renewable energy domain finished with(predicate) the UK renewable energy strategy 2009.Renewable energy in UK is supported through a range of measures. The renewable obligation Order requires electricity suppliers to secure a specified amount of the electricity they supply from renewable sources (Keynote, 2010). Renewable Obligation Certificates (ROCs) are obtained to demonstrate that renewable sources slang been employ. The climate change levy is a fossil-fuel tax income from which exemptions hatful be obtained by employ certain renewable technologies. Capital grants are available for research and development for a wide range of renewable energy projects. Grants are also available for the cultivation of energy crops. Obviously, these are good incentives to stimulate investments in renewable energy. However, investors need assurance that these incen tives and subsidies leaveing be available everywhere a larger part of the reaping life cycle and not just trap-in-incentives. This volition enable renewable energy companies to build a more than motionless and viable strategicalal plan to take high hat advantage of the incentives.The favourable geographical location of UK in impairment of its breezy condition, long coastline and excellent infrastructural facilities contributes to the rapid reaping of renewable energy. The amount of power generated in terms of renewable energy in UK grew each yr between 2004 and 2008 (DECC, 2009).A total of 17,566 gigawatt hours (GWh) was generated in 2008 which is 76.2% more than the amount generated in 2004. Biomass produced near of the renewable electricity in 2008 (46.1%) of the total, fol imp all everywhereisheded by wind and wave power (40.4%) and hydropower (13.4%), see table 1.Renewable energy is evaluate to develop into a major area, providing scope for headache growth and a substantial source of employment (Keynote, 2010). UK Renewable Energy strategy, (2009) estimated that 500, 000 jobs could be created in the grocery store by 2020.Table 1 Electricity Generated from UK Renewable Energy Sources (gigawatt hours), 2004-2008Biomass20042005200620072008Landfill4,0044,2904,4244,6774,757Co-firing with fossils fuels1,0222,5332,5281,9561,613Animal biomass565468434555587 set out biomass362382363409568Sewage-sludge digestion440470456496564 get along biomass6,3938,1438,2048,0928,090Wind wave powerOnshore1,7362,5013,5744,4915,792Offshore1994036517831,305 summarise wind wave power1,9352,9044,2255,2747,097HydropowerSmall outstrip283444478534568Other hydro1,3531,5421,9691,9121,794 summarise hydropower1,6361,9862,4472,4462,362Solar photovoltaics48111417Total9,96813,04014,88715,82617,566Source Digest of United Kingdom Energy Statistics 2009, Department of Energy and Climate ChangeHaving presented the general oerview of renewable energy fabrication , a critical surroundingsal analysis of the industriousness leave alone be examined use feller analysis, SWOT analysis and Porters five model of competitive advantage.PEST ANALYSISThe environment in which an organisation operates is divided into macro and micro environments(Philip, 2000). The micro environment has a major and direct impact upon the organisation, and its strategic planning process while the macro environment comprises those conditions that have a broad, rather than direct, impact upon the organisation (Wendy,1997). Brannan (1992) identified the major potential macro environmental factors that could signifi firetly impact on organisation performance and a possible framework for listing such factors is PEST-Politics, Economics, Sociology and Technological developments.POLITICAL FACTORSThe long-term diminish in UKs oil and gas fortunes has led to an increasing minute of oil and gas (Keynote, 2010). This means UK pull up stakes be competing in the world markets for its oil and gas requirements with emerging economies, such as China and India. These countries have different cultures and political structures to the UK, and it could be a challenge for the UK to maintain a good relationship with them. Political instability and terrorism in the middle east is also of concern on the security of planetary energy supply. Therefore, Energy supply could become a very political issues in the future. It is hopeful that renewable energy sector exit gain rattling(a) political support from the UK g everywherenment as an utility(a) to heavy trust on importation of oil and gas. This result create favourable zephyr and opportunities for investment in renewable energy sector.The quest to solve the bother of global warming has great political impact on government policies towards renewable energy. There is co- carrying out among the western world to reduce global warming by reducing carbon gas emission . The UK Government takes a prominent role in mitigating the eff ects of climate change by reducing carbon gas emission. Several government initiatives and legislation have been put in place, notable among these are The Climate Change wager 2008-a commitment to reduce the UKs greenhouse gas emissions to at least 80% below the 1990 levels by 2050, Energy Act 2008 and Renewable Obligation (Keynote,2010). Renewable Obligation requires electricity suppliers to supply a specific amount of electricity from renewable sources. This is a good initiative to develop renewable energy. fit to Deloitte(2010), UK has nearly 30 different low carbon energy incentives in form of tax credits and subsidies. The argument here is the certainty of the availableness of the incentives throughout the project life cycle. This is vital for long term strategic plans. No last-placeheless, the political imperative to introduce regulatory and fiscal incentives leave alone celebrate to create opportunities for investors (Deloitte, 2010).ECONOMIC FACTORSGROSS DOMESTIC PRODUCT (GDP)There was an yearbook increase in the UKs GDP between 2005 and 2008, but a deny of 4.8% was seen in annual chain-linked GDP in 2009, NSW,2010 (cited in distinguishnote, 2010). GDP cipher for the outcome from 2009 to 2013 are well below the growth experienced during the 2005 to 2008 period (when annual growth was between 3.4% and 5.7% at watercourse prices) TIA,2009 (Cited in Keynote, 2010). harvest-festival is compute to fall steeply to -4.2% in 2009, followed by a s a good dealed recovery to 2.6% in 2013. By 2013, GDP annual growth will still not be as great as any year in the period from 2005 to 2008. It is likely that lower GDP will have a depressing effect on renewable energy take aim. However, this notion has been proved otherwise by the year on year increase in UK demand for renewable energy (DECC, 2009). UK demand for renewable energy change magnitude by 6.7% between 2006 and 2007 and by 12.9% between 2007 and 2008. It is expected that the demand for renewabl e energy will continue to increase over the years to 2020 as government has put in place some(prenominal) incentives to attract underground investors in a bid to achieve the goals of UK renewable energy strategy by 2020. According to the secretary of state for energy and climate change (UK renewable energy strategy, 2009), UK government aims at reducing carbon emissions by expanding renewable energy to account for 15% of energy demand by 2020, reduce UKs of fossil fuels by around 10% by 2020. Through the implementation of this strategy, passable renewable energy will be in place by 2020 to supply the equivalent of nearly all 26 million homes in the UK with their authentic electricity involve and 4 million homes with their current heating needs. This radical approach will require a seven -fold increase in renewable energy in the 11 years from 2009 to 2020. The read scenario of this proposed massive expansion is ground on more than 30% of electricity needs to be generated from renewable (up from around 5.5% now), nearly from wind power, 12% of heat needs and 10% of transport needs from the current level of 2.6%. If the proposal is fully enforced and progressed as planned, it will create a massive investment opportunities for investors in the renewable energy sector. It will also promote innovation and catalyse infrastructural development in the renewable energy sector. If infrastructural and technological development are sustained over a period of time, it piece of ass bring parsimoniousness of scale in terms of bring down energy cost. This will emend the competitive strength of renewable energy.UNEMPLOYMENTAnother important economic shifting is unemployment. UK unemployment rose from 860,000 in 2005 to 910,000 in 2008, before suffering a huge rise of 68.1% to reach 1.5million in 2009 (Keynote, 2010). The drastic rise in unemployment rate was as a direct consequence of economic meltdown. The 5-year period from 2009 to 2013 is forecast to experien ce unemployment levels well above any annual figure in the preceding period (2005 -2009),unemployment is forecast to rise from 1.5million in 2009 to 2.16 million in 2010, after which it will decline to 1.86 million in 2013 TIA, 2009 (Cited in keynote, 2010). The innuendo of this is that with fewer plenty at work, it is to be expected that energy economic consumption in the workplace will decline. There will, however, be an increase in domesticated energy consumption if a large number of people are at home during cold weather.INFLATIONA stable ostentatiousness rate over time is essential for a more realistic strategic plans, whereas, in a situation of fluctuating inflation it whitethorn be thorny for organisations to have stable plans as version will have to be made from time to time. UK inflation increased from 2.8% to 4.3% between 2005 and 2007, it fell to 4% in 2008 and a deflation of 0.5% set in 2009 (Keynote, 2010). From the economic point of view, a slightly rising infla tion over time tends to favour investment as higher returns will be accrued to factors of production. Energy prices increased generally between 2005 and 2009 (Keynote, 2010). This can be partially attributed to increase in inflation rate over the corresponding period. However, a well stable inflation over time can lead to economic stagnation, which can impact negatively on renewable energy market demand.SOCIAL AND ENVIRONMENTAL FACTORSRenewable energy is often considered as the solution to the worlds climate change and wider environmental concerns (Deloitte,2010). The success of renewable energy as an environmentally friendly and alternative energy source is always questioned by its scope and sustainability. The issue of sustainability is rising and corporate societal responsibility is becoming an increasing concern for all companies. Therefore, there is more pressure on renewable energy companies to deliver an effective sustainability docket (Deloitte, 2010). Renewable energy ca n involve large infrastructure, its construction and operation has both environmental and social consequences. These include questions regarding the carbon benefits of bio-fuels and argument that they are contributing to rising food prices, fears over the impact of wind farms and tidal barrages on local biodiversity, as well as the social impact of large hydro projects which can involve relocation of villages (Deloitte, 2010). As renewable energy continues to become a larger part of the energy equation, there will be increasing focus on its sustainability credentials. The strategic implication of this for a renewable energy companies is that they should undertake thorough environmental and social assessments embedding sustainability into their boilersuit corporate strategy and supply chain in order to spare their own and the intentnesss reputation (Deloitte, 2010). It can be inferred that increased sustainability and social responsibilities will lead to increased renewable energy cost . A prospect by electric utility week (2010), found that the single most energy related problem face consumers today is high cost of various forms of energy.Another social factor militating the development of renewable energy project is the difficulties in obtaining planning permission (Michael, 2008). The reason for this is local NIMBY (Not-in-my backyard) opposition. But, this has been borne out of a fear of change and a lack of appreciation of the benefits that renewable energy can play in local communities. This constraint can be eliminated by encouraging local communities to co-invest in runty scale renewable energy projects (Deloitte, 2010). This approach will assist in alleviating rural poverty and at the same time raise awareness on the benefits of renewable energy.POPULATIONThe population of a region, its distribution, composition, growth and trend over time is an important environmental factor that could play a key role in designing an effective corporate strategie s over a congenerly long period of time .Understanding population dynamics of the market in which corporate administrations operate promotes recruitment policies, gives better understanding of demand for the products and proper segmentation of the market. In 2009, the UK resident population was 61.8 million, which grew by 0.7% compared with preceding(prenominal) figures of 61.38million in 2008 and by 2.6% compared with 60.24million in 2005 (NSW,2010). The UK population is projected to grow by 0.7% per annum between 2009 and 2013, rising from 61.8 million to 63.7 million (GAD,2009).This strong population growth and forecast is a favourable factor for the current and future prospects for the renewable energy industry. A favourable population growth can lead to increase demand for renewable energy, as a result companies can expand their market component which will impact controllingly on the organizations bottom line (profit motive). However, a increase population could also a ch allenge for the industry to continue to provide a good utility as it aims to reduce carbon emissions(Keynote, 2010).TECHNOLOGICAL FACTORSThe growing demand for renewable energy of all kinds is generating a need for people with discriminate skills. Companies need to consider how to build up, manage and retain their human capital, particularly where projects may face an uncertain development period (Deloitte, 2010). Already, there have been reports of pettystopages of turbine blades, restrict wind-farm development (Keynote, 2008). Renewable energy in UK is a world-class industry and with government commitment to realise the sectors full potentials, it is essential that its skill backside grows to support its expansion. Key players in the oil and gas industry are also stakeholders in the development of renewable energy sector. These companies employ the in vogue(p) engine room, possess well- trained engineers and other personnel. Some of these skills can be right away transfer red to renewable energy sector (Deloitte, 2010 ).Technological developments in the global renewable energy world is also important. For compositors case, China is already the largest and fastest renewable energy economy in the word, their focus is not just domestic but international, and their impact will be felt everywhere (Deloitte, 2010). warlike STRUCTUREOrganizations do not exist in isolation but operate in a dynamic, turbulent and constantly changing world with many forces in place. Among the significant environmental variables are those relating to the nature of opposition in particular market as these will determine current profitability and the scope for manoeuvring within that market (Wendy,1997). These environmental variables were identified by Porter through his five forces model of competitive structure, Porter, 1980 (cited in Wendy, 1997). These environmental variables include threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat o f alleviation products or services and rivalry among alert competitors. The current competitive position of any organization will be the net force of these five aggregated (Porter, 1980). This model will be used to analyse the competitive structure of the renewable energy industry in UK.RIVALRY BETWEEN COMPETITORSUK energy industry is dominated by many multinational energy companies. Notable among are AMEC Plc, BP Plc, Centrica plc, EDF Plc, E.ON Climate and Renewables UK Operations Ltd, Renewable Energy System Ltd, Royal Dutch Shell Plc, RWE Power Plc, economical Power Ltd, Scottish and Southern Energy Plc, AES Solar, Bio-energy Technology Ltd, among others (Keynote, 2010). These companies have very strong financial strength, employ latest technology and possess first off class manpower. Their recent interests and investments in various renewable technologies in UK is do the arguing tougher than before. For instance, in 2008, BP Plc invested $1.4b in its alternative energy b usiness and Centrica Plc announce that its proposed 250MW offshore wind farm off the Lincolnshire coast had received formal consent (Keynote, 2010). This trend is expected to continue because of the global interest in reducing global warming and carbon emission through low carbon energy sources. The implication of this is that competition between rival will grow more intense.Moreover, renewable energy is a fast growing sector of the energy industry in UK. The renewable energy sector is expected to experienced a spontaneous and sustained growth over the next two decades because of the government supports to develop the sector. As the sector grows ad lib over time, competition among competitors tends to be more intense. It is hopeful that increased competition will lead to overall industry efficiency and consequently reduced energy cost.THREATS OF NEW ENTRANTSAvailability of different incentives in terms of tax credit and subsidies will definitely woo potential investors to invest in UK renewable energy sector. The existing companies in the UK renewable energy sector are mostly multinationals with robust balance sheet, highly innovative and technologically advanced. Their size and efficient technology give them economic of scale advantage in the area of production, marketing and distribution of renewable energy over the incoming companies. The effect of this is reduced energy cost per unit that can be favourably transferred to consumers. The greatest concern about the future of renewable energy is the acceptability of its higher cost compare to other traditional energy sources to consumers. However, injection of huge capital at start-up by new companies, with right management team and dedicated staff could neutralise the requital power of the existing competitor. This could as well serve as threats to the existing companies.THREATS OF SUBSTITUTESIn recent years, renewable energy sector has received direful supports for its increase share of total energy su pply not hardly from the UK government but also from EU and the world at large. This is attributed to its positive effects on climate change. However, much have not been state about the comparative cost of renewable energy with other convectional energy sources. A study carried out by the BP Power for Royal academy of Engineering (RAE, 2010) revealed that renewable energy sources are generally more pricy than convectional energy sources. The studies attributed the higher cost of renewable energy to immaturity of the technology and limited opportunity to take advantage of cost savings through economy of scale. Convectional energy sources are good substitutes to renewable energy and ground a serious threat to its growth and development . However, it is hopeful that with the global trend towards renewable energy, the sector will experience a technological revolution and take advantage of economy of scale from increased market opportunities.THE POWER OF BUYERS AND SUPPLIERSThe barg aining power of suppliers is relatively high. This is driftn by the small number of renewable energy suppliers and relatively lack of information and product choice for buyers.SWOT ANALYSISThis is a model for assessing the Strengths, Weaknesses, Opportunities and Threats that face an organization . Strengths and weaknesses define the internal context of the organization, while opportunities and threats examine the external environment (Philip, 2000).STRENGHTSOne of the greatest environmental problems facing the world today is global warming. Global warming is caused by carbon gas emission from the convectional fossil fuels . The focus of the western world is to reduce carbon emission to as low as possible. The fundamental approach to this is the development of global alternative energy sources with low carbon emission, of which renewable energy is viable and viable option. UK is playing a leading role at reducing global carbon emission. A comprehensive approach towards achieving t hese goals, UK Renewable Energy Strategy 2009 was presented to the house of parliament in July, 2009. The strategy contains various incentives to attract private investors and proposed huge government capital investment in different areas of renewable sector. Renewable energy already benefits 485 million a year through the Renewable Obligation and plans are on ground to offer gain subsidies (e.g. reductions in transmission charges) through amendments to the electricity bills (RAE, 2010). Also, recent legislation in the UK and EU provides a framework for more commitment to the development of renewable energy.Furthermore, UK is blessed with many suitable locations for the development of various forms of renewable energy. As at 2009, a total of 1,648 sites generated electricity from different renewable sources 939 (57%) were in England , 436 (26.4%) were in Scotland, 143 (8.7%) were in Wales and 130(7.9%) were in Northern Ireland (DECC, 2010). The location advantage jibe with UK gove rnment and EU supports is a strong impetus that could drive a revolutionary development in the renewable energy sector. Also, the long- term decline in the UKs offshore oil and gas industry adds strength for an increase in renewable energy.OPPORTUNITIESUK has a stable political structure characterised by high technological and infrastructural development. Thus, the economy is capable of developing extensive expertise in a wide range of renewable technologies, including design, research, manufacture and evocation (Keynote, 2009). The availability of world class facilities and manpower in various UK universities can be harnessed to channel research towards developing a first class renewable energy technologies that will promote overall industry efficiency in the sector. The impact of research and technology in the development of a sustainable renewable energy economy cannot be overemphasised. It will drive the industry into maturity from which economy of scale can be achieved. Also, renewable energy sector opens opportunities for many multinational oil and gas companies to increase their stake or as new entrants. These companies have appropriate skills mix and technology. Development in renewable energy sector can also open opportunity for companies to enter foreign markets.THREATSLarge energy companies review the whole global energy market to identify the vanquish returns for their investment. Some of these companies have decided to curtail investment in renewable energy in certain regions and technologies, as more interesting opportunities (not inevitably in renewable energy ) lie outside UK (keynote, 2009). Also the proposed plans to change the UKs ageing nuclear power stations with new nuclear power stations pose a serious threat to the future of renewable energy. They have very low carbon emissions and represent perfect substitute to renewable energy in this respect.WEAKNESSESSThe development of large scale renewable energy and the necessary infrastruc tures require substantial amount of capital which is difficult to come by. Investors are finding it very difficult to obtain the much needed fund from the banks because of the recession. Also, it has been established by research that, in the short run, renewable energy are more expensive than the convectional energy sources . The business implication of this is that profitability will be affected in the short run. Energy supply has little product differentiation and consumers will only go for the cheapest energy source. Thus, new renewable energy companies may be forced to apply price penetration policy to gain enough market share from which they can enjoy economy of scale. Shortage of equipment, for instance in wind farm power sector also hinders development of renewable energy (Keynote, 2010).CONCLUSIONThis analysis has shown that renewable energy is a growing sector of the energy industry in UK with many potentials to develop into a major energy sector. Many forces are responsibl e for the growth of renewable energy industry. These include the global and EU commitments to reduce carbon gas emission from the convectional fossil fuel and gas, UK government supports in terms of incentives and subsidies, location advantage of UK, long term decline in UKs oil and gas output and various government legislations. In addition to this, renewable energy if fully developed provides a permanent energy source unlike other convectional sources with limited supply life span. However, the greatest challenges facing the development of renewable energy sector are uncertainty of supply as most renewable sources are affected by natural conditions that are difficult to control, and high cost of renewable energy. Studies have shown that renewable energy sources are more expensive than other convectional energy sources(Lucintel, 2010, IEA, 2007 RAE, 2010). The reasons presumption for this are both technical and economic. The technical aspect of the cost has to do with the level o f technology while economic relates to cost savings through economy of scale.According to Reuters (2009), the high cost of renewable energy sources relative to convectional energy sources is a short term technical and economic bottleneck, which will be eliminated as the sector grows in scope, expand its market share and tends towards maturity. Al Gore (2009) claimed that as time progresses, renewable energy cost generally gets cheaper, while fossil fuel generally gets more expensive. It is expected that the UK 11 years (2009-2020) strategic plans for developing the renewable energy industry as analysed by UK renewable energy strategy 2009, will drive the industry into maturity through innovation and high technology. The continuous increase in demand and market share by the renewable energy over the years is an indication that in the very near future, the sector can achieve reduced energy cost per unit through economy of scale. Thus, the sector will be able to compete favourably in t erms of cost with other sources of energy. It is therefore, evident that there are potential and viable business opportunities for investors in renewable energy sector of the UK economy.