Energy price uncertainty and execution costs are challenges for investing in renewable energy – yet they still intend to nearly double their allocations, research suggests.
Institutional investors plan the near doubling of their allocations to renewable energy over the next five years, according to a survey commission by Octopus Group, an asset manager. The survey spanned 100 investors from Europe, Asia and Australia.
An estimated $210 billion (€185 billion) from the 100 institutions is expected to flow into the asset class over the period, meaning allocations to renewables from these investors will increase from 4.4% to 7.1%.
Just over 40% of those already invested in renewables expected to increase allocations by as much as 10%.
Current market volatility and the perceived end of the market bull run were cited as drivers for increased allocations to renewable infrastructure and two-thirds of renewable energy investors surveyed cited diversification as the main driver for investment in the sector. This was closely followed by those who were pursuing an environmental, social and governance strategy and many also cited predictable cash flows as a primary driver.
As well as energy price uncertainty – which 56% of respondents cited – and execution costs, the research also found other challenges, such as liquidity (41%); operating and implementation costs (34% – including those who cited execution costs); lack of scale (34%); government and regulatory barriers (33%).
Octopus Group said these challenges must be addressed if the International Renewable Energy Agency estimate that $1.7 trillion of investment was needed between 2015 and 2030 to meet global renewable energy targets to combat climate change was to be met Matt Setchell, co-head of energy investments at Octopus, said: “There is much to celebrate in the report. However, while institutional investors’ contributions are on the increase there remains a long way to go to plug the funding gap. We cannot afford to view increased allocations as ‘job done’. More needs to be done to unblock investment to help tackle climate change. Acting now is not an option; it is a necessity.”
He added that clarity on policy from government; flexible investment opportunities to suit investor needs and skilled managers who are able to identify and offset risks will be crucial to unlocking further institutional investment into the sector.
Octopus is an asset manager with £8.5 billion (€7.5 billion) of assets under management. The report is called ‘The green investor: why institutional investing holds the key to a renewable energy future’.
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