Institutional investors nearly double exposure to renewable infrastructure

    Institutional investors have nearly doubled their exposure to renewable infrastructure investments over the past two years, from 2 per cent to 3.6 per cent, and believe the biggest allocation increases will be made to offshore wind, solar thermal and onshore wind, according to a new study.

    The research, commissioned by Aquila Capital, also revealed that over one in ten institutional investors (12 per cent) allocate between 10 and 15 per cent to renewable energy infrastructure.

    The increase in allocations is reflected in investors’ attitude, Aquila said, as three-quarters (75 per cent) have a positive outlook on investments in renewable energy, a 9 per cent increase from 66 per cent in 2016.

    The most important drivers behind the increase in investor commitment were cited to be long-term, stable cash flows according to 55 per cent of the surveyed. About 35 per cent said geographic diversification and low correlation to other asset classes increases its attraction, 33 per cent said inflation hedging and 30 per cent said fulfilment of ethical standards.

    However, almost two-thirds of respondents flagged regulatory risk as the greatest challenge influencing their decision towards investing in renewable infrastructure, while 37 per cent of investors said political risk, government subsidies and the development of electricity prices were the next big challenges.

    Aquila Capital’s head of investment management energy & infrastructure EMEA, Susanne Wermter, said in a statement: “Investors have been allocating increasing amounts of capital to renewable infrastructure in recent years and, given the positive outlook expressed in our research, there is every reason to believe that this trend will continue.”

    She explained that mounting concerns of a global capital market correction has led the investment case for renewable energy to remain compelling and said investors are increasingly looking beyond ethical considerations when committing capital to renewable infrastructure funds.

    “Looking ahead, new investment opportunities continue to emerge as Europe accelerates its energy transition from fossil fuels to renewables. In April last year we launched the Energy Transition Infrastructure Strategy (ETIF), which capitalises on this trend by investing across the three key subsectors of the energy transition, namely renewable energy generation, energy storage and energy transportation,” Wermter said.