Investment Company Managers discuss COP26, inflation, energy shortages and top sustainable themes
Ahead of COP26 this weekend, the Association of Investment Companies (AIC) has spoken to renewable energy infrastructure managers. They discuss what they expect to see from COP26, the impact of rising inflation and the sustainable investment themes they’re most optimistic about.
What do you expect from COP26?
Jonathan Maxwell, Founder and CEO of Sustainable Development Capital, investment manager of SDCL Energy Efficiency Income, said: “We would like to see a focus on efficiency because, simply put, sustainability equals resource efficiency and we cannot continue to waste two thirds of the energy we produce. Fixing resource inefficiency needs to be the key focus of discussions about solutions and actions taken at COP26. We must think differently and encourage markets to invest in these changes, providing attractive returns for investment that helps bridge the gap to net zero. It should not just be greener energy production that feeds into the same broken and inefficient system, but making the system fit for purpose so that we maximise its efficiency.”
Jerry Polacek, Fund Manager of Ecofin US Renewables Infrastructure, said: “We expect to see rising aggregate commitments to combat climate change through the adoption of proven, cost-competitive renewable energy to decarbonise the global power sector. We anticipate government commitments to be embraced by the private sector through corporate goals that are driving ongoing technology innovation and capital investment. These factors, along with rising consumer demand for sustainable energy, will continue to propel exponential growth of carbon-free renewable energy as the predominant source of power in the coming decade.”
Michael Bonte-Friedheim, CEO and Founder of NextEnergy Capital, investment manager of NextEnergy Solar Fund, said: “COP26 is an opportunity for tangible action from world leaders and key decision makers. NextEnergy Solar Fund is a renewable fund that specialises in solar and we expect to see governments around the world invest heavily. We also expect them to drive policy change to facilitate increased penetration of renewables to help tackle climate change. Solar is in a great position to help capture this demand as it is the lowest risk and most affordable renewable technology globally.”
Protection from rising inflation
Michael Bonte-Friedheim, CEO and Founder of NextEnergy Capital, investment manager of NextEnergy Solar Fund, said: “An investment in utility scale solar is a fantastic inflation hedge. Around 63% of NextEnergy Solar Fund’s revenues are generated via UK government subsidies (such as Feed-in-Tariffs or Renewable Obligation Certificates) which are linked to RPI. The remaining revenues are naturally tied to inflation through power prices, which tend to rise in periods of inflationary pressure.”
Matthew Ordway, Fund Manager of Ecofin US Renewables Infrastructure, said: “As an owner of renewable energy assets, our portfolio benefits from free and abundant solar and wind, whereas thermal power generators’ margins are often squeezed in an inflationary environment, as natural gas and coal fuel costs rise. Furthermore, we protect our portfolio from increasing costs by entering into long-term fixed price contracts for a significant portion of each project’s expenses.”
The impact of energy shortages
Jonathan Maxwell, Founder and CEO of Sustainable Development Capital, investment manager of SDCL Energy Efficiency Income, said: “Energy shortages highlight the strong business case for the projects within our portfolio. Our portfolio comprises decentralised, on-site energy solutions that can reduce or avoid the significant generation, transmission and distribution issues associated with a centralised grid, while also ensuring a more reliable supply of energy. At a time of energy shortages, energy efficient solutions present an attractive proposition for businesses, offering a reduction in energy costs with the added benefit of improved energy performance and reliability.”
Ross Grier, UK Managing Director of NextEnergy Capital, investment manager of NextEnergy Solar Fund, said: “An energy shortage across Europe has driven power prices to unprecedented high levels. NextEnergy Solar Fund generates electricity through its solar photovoltaic assets and sells the power through both long- and short-term power purchase agreements. As power prices rise, our electricity sales team seeks to lock in higher revenues, improving NextEnergy Solar Fund’s financial performance relative to its long-term forecasts.”
Most exciting sustainable themes
Ross Grier, UK Managing Director of NextEnergy Capital, investment manager of NextEnergy Solar Fund, said: “NextEnergy Solar Fund recently announced its first significant step into energy storage through a joint venture partnership with battery specialist Eelpower. Energy storage adds multiple diversification benefits to the portfolio, but crucially helps provide stability to the national grid, helping further penetration of solar assets in the UK. With COP26 around the corner, the UK is currently setting a great example for how economies can shift their energy mix to tackle climate change. By NextEnergy Solar Fund investing in both solar and batteries we proudly believe that the fund is making a real difference to the UK energy landscape – for example powering over 195,000 homes in the UK between 2019 and 2020.”
Jonathan Maxwell, Founder and CEO of Sustainable Development Capital, investment manager of SDCL Energy Efficiency Income, said: “The key theme we are addressing is answering the following questions: why do we waste most of the world’s energy, what can be done about it and how can we invest in solutions? We seek to build a technologically diversified portfolio that is compatible with a pathway towards decarbonisation. Beyond combined heat and power, solar, storage and district energy, we are evaluating investments in heat pumps, micro grids, cooling, low carbon fuel for transport including green gases, as well as electricity and hydrogen. SDCL Energy Efficiency Income has also continued to diversify by geography, with further expansion into the United States, Europe (Sweden, Ireland and Spain) and the UK, as well as making its first investment in Asia in 2020.”
Jerry Polacek, Fund Manager of Ecofin US Renewables Infrastructure, said: “In this inflationary market environment, the economics of renewable energy are more compelling than ever for energy consumers. We expect to see acceleration of an already robust adoption of renewable energy through long-term contracts to enable energy consumers to hedge their rising electricity costs. The certainty of predictable cash flows from a diversified portfolio of solar, wind and other renewable infrastructure assets will enable Ecofin US Renewables Infrastructure to continue to scale its business and deliver attractive risk-adjusted returns to its investors.”