CAIA event: Clean energy panel session
Following our Clean Energy panel event on 16 May 2018, we have summarised some of the keys themes which were explored by our panel in the below article.
Since the first wave of large infrastructure fundraisings, the sector has cemented itself as a unique asset class in the eyes of the investment community.
The growth of formerly “niche” sub asset classes have become mainstream investments, which are constantly evolving. Clean energy and specifically renewables is a subset that sees strong demand from retail and institutional investors.
Key themes
- Clean Energy is a huge opportunity. It is now a mainstream infrastructure asset and a part of many institutional investors’ portfolios.
- Whilst historically subsidy has been key to investment, the huge falls in the cost of technology and equipment, the impetus to decarbonise and, in some countries, the increasing requirement for power mean that going forward there are investable opportunities under subsidy free and subsidised regimes.
- While the removal of subsidies in the UK market has reduced returns, the UK is only a small part of the global decarbonisation needed. There is both a huge opportunity and challenge arising from other geographies, including those related to the ‘Belt and Road’ initiative and across Africa. Predictable regulatory regimes, good local knowledge and clear documentation are key to success in developing international renewables markets. Investors are seeking out new geographies - Chile is particularly popular as it is OECD and dollar denominated.
- China's drive to use solar power to reduce emissions from coal plant and its development to use electric cars, to avoid dependence on foreign oil and gas, also creates scale that is driving down solar costs across the whole market.
- High competition for assets exists meaning those investors seeking higher returns can find themselves priced out. Investors are therefore also looking at non subsidised projects and how they can be made economic. Downward pressure on land acquisition and O&M costs, bundling projects to achieve economies of scale and to enhance collective credit rating, and use of innovative financing techniques all have a role to play. Some investors who previously operated in the secondary market may consider taking construction risk or even developing their own assets, in order to increase returns.
- Storage is a key future technology. It becomes critical once a country’s supply is over 30/50% renewables. Effective and inexpensive battery storage is a key future development.
- More efficient technology can be expected as can continuing drops in prices of technology and equipment.
- Expect the fast pace of change to continue. The sector is in a transitional phase but expect the move to more renewable power and cheaper technology to continue.
For enquiries about this event or future events in the series please contact Charlotte Bishop.
