Global: Institutional investors continue to increase renewable infrastructure exposure

A new study among institutional investors in Europe reveals that more than six in ten (61%) expect to increase their exposure to renewable infrastructure and a further 30% plan to maintain it over the next three years. Just 3% of respondents predict a fall in allocations. 

The research (1), commissioned by Aquila Capital, one of Europe’s leading independent alternative asset managers shows that nearly half (48%) of respondents cited portfolio diversification as the main reason for investing in renewables, closely followed by reliable long-term cash flows (44%) and portfolio returns (43%). Environmental factors were cited by only (22%) of investors as their primary driver.

Exactly half (50%) of investors have a positive outlook for renewable infrastructure, including 9% who are very positive. A further 43% have a neutral outlook for the asset class and only 7% are somewhat negative, half the number compared to the previous year.   

Investors’ biggest concerns about renewable infrastructure are its limited scalability and investment volume, cited by 38% of investors, followed by regulatory hurdles (37%) and the experience and track record of the managers of the assets (36%).  

New technologies applied to thermal, geothermal and biomass are set to attract the biggest increases in investor allocations over the next three years: 59% of institutional investors say their peers will be backing these emerging subsectors with 9% predicting a dramatic rise; over half (54%) expect investors to increase their exposure to hydropower, 48% to offshore wind and 49% to solar.

The majority (64%) of European institutions have some exposure to renewable infrastructure and currently allocate an average of 4% to this asset class but the study suggests these figures are set to rise, including 11% who believe the increase will be ‘significant’.

Roman Rosslenbroich, CEO of Aquila Group, commented: “The survey shows that investors’ appetite for renewable infrastructure as a way to generate yield and improve portfolio returns is continuing to go from strength to strength. This is reflected in our own experience. Our Aquila Capital Renewables Fund III S.A. SICAV-SIF for example, which we launched in May this year, secured more than EUR 100 million at first close and demand from large institutional investors continues to be significant with a second close to follow soon.”

“We are also seeing investors taking a more sophisticated view towards their renewable allocation strategy with increasing numbers opting to build a diversified portfolio offering exposure to different subsectors, including hydropower. Typical correlation levels to other renewable energy investments such as wind power and photovoltaics are low and their long-term cash flows are uncoupled from traditional asset classes such as equities and bonds. As one of the largest financial investors in the European photovoltaic market with a track record of approximately EUR 2.4 billion in renewable energy transactions, Aquila Capital is able to offer investors renewable infrastructure investment solutions that provide access to top-tier assets from day one.”

Sources:

• (1) Research carried out among 100 institutional investors across Europe in October 2015