Summit News

Renewables eyed by big funds: Capital Dynamics

MELBOURNE (Reuters) - Renewable energy assets across developed economies are starting to attract funds looking for long-term investments in energy generation, Swiss-based Capital Dynamics said on Tuesday.

“Institutional investors globally are really only just coming into this space now because the scale is building and returns can be quite attractive,” David Scaysbrook, the managing director of Capital Dynamics clean energy and infrastructure team told the Reuters Global Climate and Alternative Energy Summit.

Capital Dynamics has two renewable energy funds, a $300 million U.S. solar energy fund and broader $500 million global fund that invests in a wider range of renewable assets.

“The amount of investment globally has quadrupled in the past five to six years so now we are starting to see it get to a scale where some of the bigger pension funds can really take it seriously,” he said on the sidelines of a carbon conference in Melbourne.

The firm restricts its activities to direct investment in privately-owned projects or developers of projects, and invests only in proven technologies in mature markets such as the United States, Europe and Australia.

Scaysbrook said the tide was turning with large institutional investors now starting the scour the world for opportunities to invest in clean, green energy assets.

The increased interest comes as funds continue to seek exposure to the energy sector by investing in electricity generators.

With fossil fuels on the nose in Europe and increasingly so in the United States and Australia, it was natural for funds look for where the growth is, according to Scaysbrook.

“A lot people don’t realize that in 2008 there was more renewable capacity constructed in the United States and Europe than conventional power for the first time ever and that feat was repeated in 2009,” said Scaysbrook.

“That has now put renewable energy on the map as an asset class,” he added.

Since 2004 investments in the global renewable sector has increased almost three-fold to $162 billion last year with further growth tipped for this year, according to Scaysbrook.

“It is beginning to be big numbers and if you look at what’s forecast, we’re talking about another doubling of that potentially over the next three years,” he said.

Key growth drivers have been cost reductions in building large-scale projects, particularly solar projects, and changes in the regulatory environment.

The cost of building large-scale solar panel modules has nearly halved during the past 18 months, largely due to a shift in manufacturing to China.

Scaysbrook said in the United States 29 states had introduced renewable energy standards during the past two years, a move that had encouraged investment in renewables.

“Right now, the returns in the United States are exceptional because of the combination of the regulatory stimulus and the big reduction in the cost of constructing solar projects,” he said.

Europe also continued to be an attractive place to invest while in Australia some opportunities had been created by last year’s introduction of a mandated renewable energy target.

Scaysbrook said some institutional investors remained wary of pouring cash into renewable energy projects as the returns they generated were partly reliant on government subsidies.

“Looking forward, the introduction of any form of carbon pricing, whether it is in the form of a carbon tax or a cap-and-trade scheme, is going to change the relatively pricing of electricity,” said Scaysbrook.

“That means the cost of renewables versus the cost of conventional fossil fuel power is fundamentally going to flip in the next 5-10 years,” he said.

For institutional investors, Scaysbrook said the risk associated with investing in industries dependent on subsidies would lessen as renewable energy projects became more competitive.

“Those investors concerned that the premium pricing of renewables is a risk will have less to worry about as we are reasonably confident the premium will flip,” he said.

“At that inflexion point the equation changes -- that’s when a lot of other institutional investors will move into the sector as renewables will start to compete on raw costs without any form of subsidy.”

Editing by Ed Lane