Commercial-scale renewables see rising investor interest, but the influx pits pressure on anticipated financial gains, writes Eduardo Monteiro, co-CIO at Victory Hill.
The energy transition is coming of age and it’s obvious why, with renewable technologies maturing and their costs plummeting allowing for far greater applications in the energy mix beyond subsidy-based projects. Renewable energy developers can now be found in every corner of the planet, far out to sea, deep underground and even in cities. Capital earmarked for renewable energy projects has ballooned in both debt and equity capital markets, although with a focus on commercial-scale developments.
Impact funds that invest in public markets have attracted more than $1trn in capital commitments from investors, according to a recent report from S&P Global. The IEA meanwhile predicts this number will double over the next few years to meet the demands of a low carbon economy.
But with maturity comes some hard truths. One of these truths is that as investors crowd into the commercial-scale renewables market, returns are inevitably being squeezed. Big investors most of all will be affected by this as they continue to seek larger and larger projects to address dry powder build-up.