'As an asset class it is going to be interesting for institutional investors,' says expert
Private and public investments in renewable energy sources have experienced substantial growth in recent years, driven by urgent environmental concerns and expanding prospects. The International Energy Agency (IEA) foresees record-breaking clean energy investments of $1.8 trillion in 2023. To remain on the path to achieving net-zero emissions, an annual investment of $4.5 trillion is required within the next decade.
Institutional investors have been making strides in the renewable energy sector, with investments expected to surpass $2 trillion by 2030.
The Canada Pension Plan was among the early adopters of renewable energy investments. John Graham, president and CEO of CPP Investments, attributed their success in the challenging 2022 market to “solid returns” on renewable energy assets and infrastructure. CPP Investments plans to increase its green and energy transition assets from $67 billion to at least $130 billion by 2030.
Long-term investors interested in renewable energy are exploring various options, including clean transportation, hydrogen, biofuels, battery storage, and more. While these options pose challenges in predicting revenue streams, they hold promise for institutional investors due to their extended investment horizons.
“As an asset class it is going to be interesting for institutional investors,” said Bill Rogers, head of sustainable energies at CPP Investments. “We don't need certainty...over time it will develop pools of capital. One of the reasons that makes the energy transition exciting is the vast amounts of capital needed.”
Mark Dooley, global head of green investments at Macquarie Asset Management, noted the increasing interest in renewable energy as an asset class.
“We've gone from an asset class where you had to spend a lot of shoe leather, to a market where there is a lot of interest. We have to run pretty hard to keep up with that demand,” Dooley added. “As an asset class it is still growing. We see tremendous opportunity for capital formation for people like us, and a growing group of investors.”
The renewable energy market is rapidly evolving, with technology like utility-scale battery storage and hydrogen gaining popularity. This marks a shift from the market conditions of just two years ago, and investors are increasingly interested in early-stage asset acquisition opportunities.
“Many investors are finding now that they need to look at companies that take assets at an early stage,” Dooley continued. “I think there is a gravitation towards opportunities to get that ground-floor return. It does take a bit more patience.”
Brendan Bell, COO of Aligned Climate Capital, a decarbonization fund manager, highlighted that renewable energy is “a much more mature market than it was five to 10 years ago.”
“The driver has primarily been wind and solar, but we’re starting to see that expand to electric transportation and energy efficiency, and then we’re seeing businesses built around these,” Bell said. “This is all creating opportunities for traditional growth, equity and buyout, venture, etc. The broader set of decarbonization sectors are developing a market that is becoming more and more institutional over time.”
