Rising investment plans for a clean energy future

Rapidly progressive markets and continued changes in investor requirements are expected to create significant opportunities for asset managers in the coming years. 

In terms of the energy market, over 70% of total global energy demand in 2018 was driven directly by China, the United States, and India.  The recent Global Utility Asset Management Market 2020-2028 report created by CRIFAX states that the global utility asset management market will experience considerable growth over this stated period. This anticipated surge is largely related to an increasing population and global economic development, combined with rising demand for heating, cooling, and higher energy demands within other industries.

The International Energy Agency (IEA) reported that global energy demand levels increased by 4% during 2018 and that the average energy consumption growth rates nearly doubled since 2010. The rise in demand for clean and more sustainable energy sources has driven many governments to enforce stricter regulations and policies to tackle carbon emissions and their associated impact on the environment.

Global energy consumption levels are increasing annually with China, India, and the United States accounting for the majority of this rising demand. At the same time, awareness and recognition of climate change, sustainability, and environmental degradation are causing many businesses and manufacturers to introduce new clean energy initiatives, supporting sustainable development practices worldwide. Strategies to meet clean energy targets are predicted to positively impact the development of the global utility asset management market within the forecasted period.

Overall support for clean energy assets is expected to rise with large-scale solar being regarded as the most appealing market for investors. Recent studies suggest that many businesses are planning to increase their investment plan focus within the renewable energy market. Furthermore, the market volatility connected to other industries is creating further advantages for renewables as institutional investors seek to expand and diversify their investment portfolios. A large proportion of key investors are working to spread investments in multiple assets, with renewables being a prominent choice. The security and added benefit of a predictable cash flow generated from renewable energy projects are key motivators for this investment decision.

The influence of compliance on investment plans

Environmental, social, and governance credentials (ESG) clearly have more influence on investment plans today. ESG compliance has become a significant factor in determining clean energy markets and meeting investor demands that align with global trends. There are a number of reports that emphasize this push for investors to drive ESG, which will only grow as sustainability and our greener-conscious society closely follow investor plans. 

Energy Investor Kathryn O Connor believes that traditional asset managers and financial technology companies are also focused on this growing ESG trend. Kathryn highlights several businesses such as Carlyle, which have significantly expanded their renewable energy team, Apollo who is re-entering the impact sector, and KKR is debuting its initial impact fund, headed by a well-known diversity and inclusion leader. These three groups alone are proposing raises in excess of $3 billion in the next year.

Kathryn O Connor, states, “Aside from debut funds, all fund managers are looking to make existing funds and the analysts that cover them more ESG-friendly. Take for example AllianceBernstein, which currently manages funds of $600 billion. In late 2019, it announced a partnership with The Earth Institute at Columbia University to develop a ‘Climate Science and Portfolio Risk’ curriculum designed to help AB portfolio managers, analysts and other investment professionals better discern and analyze climate-change risks and integrate them into their investment decisions.” 

Over the last decade, financial technology companies have shown they are leading the way in regards to disrupting traditional asset management and there is clearly a similar path for ESG within traditional asset management. A number of new companies are looking to disrupt and transform the existing services within the private equity sector. O Connor highlights findings from Cerulli Associates that show that two-thirds of investors under 30 would likely select investments that have a positive social or environmental impact. 

One of the key barriers restricting further investment into the renewable energy market is related to uncertainty concerning energy prices. Other industry leaders have voiced concerns regarding the liquidity and the overall lack of skills in renewable energy investment and asset management. A clear policy structure combined with flexible investment plans, and skilled personnel capable of balancing risk is equally important. These factors will be essential to enable further investment into clean energy. 

The rise in institutional investment in clean energy is promising, however, more needs to be done to enable further investment to realistically help tackle climate change. Maulik Patel, Director of Asset Management at New Columbia Solar, states, “As investors and businesses continue to deploy capital in solar projects, Asset Managers need to develop tools and processes to automate the identification of performance issues. Maximizing uptime and performance need to be done while being mindful of O&M costs to achieve the expected returns investors expect.”