Survey reveals surging demand for renewables, as leading investment firms ramp up clean energy ambitions
Institutional investors plan to almost double allocations to renewables in five years,as a combination of customer pressure and market volatility serves to make clean energy projects and increasingly attractive investment proposition.
That is the conclusion of a new report this week from clean energy investment specialist Octopus Renewables, which found that institutional investors intend to up their current allocation for renewables from 4.2 per cent of their overall portfolio, to 8.3 per cent over the next five years. Allocations are expected to then increase further to 10.8 per cent by 2030, representing $742.5bn of investment.
The news comes in the same week as some of the UK's leading renewables investment companies moved to ramp up their activity and the government announced plans for a new wave of clean power contracts that promise to deliver 12GW of new capacity from onshore wind and solar farms and offshore wind projects.
The survey of 100 institutional investors from the UK, EMEA, Asia, and the US representing $6.9tr of assets under management found that 80 per cent plan to increase their allocations to renewables over the next three to five years while 50 per cent think renewables have become more attractive investments during the coronavirus crisis.
The growing interest in renewables is being driven by pressure from millennial investors, a low interest rate environment and volatile equity markets that are making renewables projects more attractive by comparison, and a desire amongst institutional investors for stable and predictable cash flow, the report said.
However, the survey also revealed that the uncertainty and challenges caused by Covid-19 could slow the pace of divestment at some large investors. Investors on average divested 4.5 per cent of their overall portfolio in 2020, compared with 5.7 per cent in Octopus' 2019 survey. And looking ahead, investors have significantly cut their planned rate of divestment and now expect to divest 5.2 per cent over the next five years and 8.6 per cent over 10 years, down from the 14.4 per cent and 15.6 per cent forecasts provided by investors for the same time periods in the 2019 survey.
Alex Brierley, co-head of Octopus Renewables, said that overall renewables had proved "an incredibly attractive asset class in the face of this year's volatility, buoyed both by growing external pressures to invest responsibly, and by investors looking for long-term sources of yield".
"There is further progress to be made however, and alongside renewables investment, divestment from fossil fuels also remains key," he added. "As gatekeepers to trillions of dollars, institutional investors have a critical role in fighting climate change. But to move the dial, investors have been clear that issues such as lack of government coordination, liquidity issues, and energy price uncertainty are standing in their way."
He also argued that specialist energy fund managers needed to take steps to "make investments more accessible and encourage greater investment in renewables and divestment of fossil fuels".
The report is the latest evidence that investor appetite for renewables projects is rapidly increasing. Separately, investment firm Downing LLP is in the process of completing a share issue for its new Downing Renewables & Infrastructure Trust (DORE) that is aiming to raise up to £200m via a placing on the London Stock Exchange.
The company intends to use the funding to invest in a diversified portfolio of renewable energy generating assets including wind, solar, hydro, and geothermal along with other infrastructure assets in the UK, Ireland, and Northern Europe. The firm said it has secured up to £30m of cornerstone investment in support of the issuance, with Downing Managed Funds committing to invest up to £20m and existing Downing clients committing to invest a further £10m.
It has also secured an option to acquire a seed portfolio for £41.4m comprising of around 96MWp of operational UK solar PV projects with an average operating track record of around six years, and identified a significant pipeline of assets with a value in excess of £1.5bn.
"We are continuing to witness strong investor demand for renewable energy, which remains critical to our efforts to reduce carbon emissions," said Hugh W M Little, Chair of Downing Renewables & Infrastructure Trust Plc. "We believe that DORE's systematic strategy of diversification by technology, geography and project stage provides an attractive and differentiated proposition. The investment team at Downing is highly experienced and has a proven track record of successfully investing in renewable assets."
In related news, energy giant RWE announced yesterday it is to divest a 49 per cent stake in the Humber Gateway offshore wind farm in a £648m deal with renewables-focused investment manager Greencoat.
The move will see RWE retain a 51 per cent share in the 219MW wind farm, which has been operational since 2015.
The agreement follows similar deals between the two companies, which has seen Greencoat invest in RWE's offshore wind farm Rhyl Flats as well as onshore wind farms at Little Cheyne Court, Lindhurst, and Middlemoor. The firms said the transaction further "demonstrates the attractiveness of the United Kingdom for investment in wind power".
Meanwhile, The Renewables Infrastructure Group (TRIG) also yesterday announced plans for a share issue aiming to raise £200m to meet its near term investment requirements, following its recent purchase of a 14.3 per cent stake in the East Anglia One offshore wind farm and the Haut Vannier wind farm in France. The company also highlighted that it has a pipeline of investment opportunities boasting over 250MW of wind power capacity.