The government is preparing an industrial strategy and it will focus on the sectors which offer the highest growth opportunity for the economy and business. Eight growth-driving sectors have been identified. Mickledore has considered the drivers of change in these sectors and the implications for business support and investment.
What are low-carbon businesses?
As ever, umbrella terms can muddy our ability to focus on the local businesses and investment opportunities. The low-carbon economy can be best defined as activities within power generation and distribution, heat, transport, processing, and the circular economy. Of course, these broad sub-sectors can be further segmented, but the sub-segmentation helps consider the existing business base and the potential for further investment.
Drivers of change
- Electrification is rapidly expanding. The shift to renewable power generation and the electrification of heating systems and transport are creating investment projects as well as leading to a need to reinforce power transmission and distribution systems. This feeds into work to improve power management and storage at both a whole economy level and within individual properties.
- Retrofitting and new building techniques are increasingly important aspects of the drive to renewable heat. Regardless of the heating solution incorporated into buildings, improved thermal efficiency will reduce the total energy required for heating.
- The circular economy is driving increased reuse of scarce materials, and the market returns are increasingly impacting product design and recycling techniques.
- A net-zero economy is more of an economic and political challenge than a technical challenge. This will impact the speed and scale of change, but change is already underway.
- Significant research is underway on new technologies, such as hydrogen, as a widely used energy source and storage system. Such examples may provide additional potential solutions in the future, but at present, they offer fewer commercial-scale investment opportunities for local economies.
UK Position - opportunities and issues
The shift to a low-carbon economy is an area of growth in the UK economy. Large-scale investment in renewable generation will continue. Additionally, National Grid is committed to investing £35 billion in energy infrastructure over the next five years, with Distribution Network Operators (DNOs) also building resilience into their grid infrastructure. The investment programme will continue. The investment will require the procurement of significant, large-scale electrical equipment that exceeds the UK’s manufacturing capacity and is of a type that is difficult to transport.
At the individual property level, a combination of subsidies and legislation is driving investment in electrified heating solutions and a shift to smart energy systems, which may involve solar PV generation, heat pumps, EV charging, and battery storage. Significant levels of investment will be driven by Registered Providers of social housing needing to attain EPC B ratings on housing by 2030. This system-level approach may result in new manufacturing activities, but it will require investment by installers, as well as the development of software control systems and new commercial models.
Currently, the UK Government has maintained its commitment to low carbon, while other administrations are showing a wavering commitment. This is considered a key point of differentiation and has the potential for the UK to benefit from global low-carbon investment, which seeks an economic environment with a stable and consistent outlook on decarbonization.
Securing growth and investment at local level
As the shift in the UK's low-carbon transition from large-scale generation projects to individual consumer actions increases, the opportunity for localised new investment projects in installation, repair, and maintenance will also rise. Investment is anticipated in the following areas:
- Electrical engineering has the potential to be an area of massive investment. The entire transmission, distribution and behind-the-meter individual usage will require investment in cables, transformers, switchgear, battery storage and control systems. The onshoring of significant manufacturing is considered likely.
- There will be commensurate investments from businesses involved in electrical system installation.
- Electrical heat will result in further investment projects in manufacturing, particularly in domestic heat pumps, as well as in installation, service, and repair businesses for entire electrical domestic systems.
- The modularization of certain construction elements will drive investment. The shift to complete housing modularisation has not been successful within the UK, but smaller-scale modular elements can be incorporated into housing.
- Recycling is likely to become an increasingly professionalised and sophisticated activity at centres across the UK.
- The entire low carbon economy will require an increase in skills and skills providers also represent an economic opportunity for local areas – both in terms of the economic contribution that they make in their own right but also in ensuring those areas seeking to grow their low carbon economies can demonstrate that they have the critical skills available.
Conclusion
Likely, the shift from the high-profile large-scale renewable energy generation projects to the below-the-radar everyday investments at a consumer level will be the shift that has the potential to result in broader local investments. There is an irony that, at a time when scepticism about the pace of decarbonization may be growing, the greatest local economic benefits could be secured.
Mickledore is an economic advisory business focused on strategy, investment, business cases and evaluation. We have worked on sector strategies across the UK. For more information or a discussion about specific local circumstances contact Nigel Wilcock at nwilcock@regionaldevelopment.co.uk