New research from Downing LLP (Downing) identifies liquidity constraints and insufficient regulation as key barriers to investment in renewable energy for UK pension funds, other institutional investors and wealth managers.
Downing offers both institutional and retail investors the opportunity to invest in renewable energy and other infrastructure in the UK and northern Europe.
A survey of 100 UK professional investors, who collectively manage around £ 118 billion in assets under management, reveals 75% say a lack of liquidity in certain areas of the renewable energy sector is the main barrier to investment. Seventy per cent say regulation needs to improve while the same number cite high costs as an obstacle to investment in renewables.
More than half (54%) say there is not enough transparency in the renewable energy asset class, while 31% say there is a lack of track record or data in certain areas.
Nearly all (94%) of institutional investors and wealth managers say the renewable energy sector will become more attractive in the next three years, with 45% saying it will be much more so and 49% saying slightly more attractive.
When asked to pick their top three reasons for the sector becoming more attractive to investors, almost three-quarters (71%) highlight the macro-economic environment eg, high inflation and more volatility. At the same time, half cite a predicted fall in fixed income yields.
Some six out of ten professional investors (61%) include expected regulatory changes, encouraging decarbonization in their top three factors, making renewables more appealing to investors.
Nearly half (46%) include tougher regulation against oil and gas companies in their top three reasons.
Liquidity too is expected to improve with 62% of respondents anticipating more investment opportunities in renewable energy.
“Renewable energy is gaining more importance to institutional investors and wealth managers as they consider the climate change risk to their portfolio,” said Tom Williams, head of Energy & Infrastructure at Downing and manager of Downing Renewables & Infrastructure Trust. “However, the asset class needs to be more transparent, lower cost and be supported by appropriate regulation. Transparency is one of the key reasons why Downing Renewables & Infrastructure Trust chose to become an Article 9 fund.
“Downing has invested in more than 175 core renewables projects over the 12 years, providing investors with stable, predictable, long-term cashflows, which are often wholly or partly linked to inflation. We provide access to investors to this critical asset class and enable them to quantify the impact of their investments. ”