JUNE 2014
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Renewable
energy requires
longer investor
commitment
Anne Mieke van der Werf, Director Energy & Climate,
Triodos Investment Management
E
“
Consensus is growing that energy efficient and low-cost
energy solutions will play a determinant role in ensuring
that more people get access to clean energy.
nergy is an indispensable asset. After food,
water, healthcare and shelter, energy has
become a necessity of modern life, and
access to it enables economic development.
Despite the benefits, current energy consumption
patterns have a profoundly negative environmental
impact. Concerns have been expressed for many
years about the local impact of fossil fuel
production and the air pollution caused by high
levels of energy consumption, especially in densely
populated areas. Over the last 20 years, evidence of
a much more complex, all-encompassing
environmental impact of our energy consumption
has become apparent: climate change. Increasing
scientific evidence and extreme weather conditions
have served as a wakeup call and
led to demands for a drastic
Concerns have been
change in our energy production
and consumption.
expressed for many
What is required is a transition
years about the local
from our current carbon-based energy
impact of fossil fuel
system to a society powered by
production and the air renewable energy sources. Renewable
energy next to energy efficiency
pollution caused by
measures is the way forward. Wind and
high levels of energy
solar energy, hydropower, geothermal
consumption
power and energy from biomass are
the modern alternatives to oil, natural
gas and coal: no more polluting and damaging extraction
methods or emissions of substances that pollute the
environment and cause global warming.
Finally, the world faces an urgent need to develop
clean and renewable energy sources to meet future
energy demand in developed and developing countries.
The bigger picture
There are already sufficient alternatives available but they
are not being used or developed efficiently. We need to
look at the bigger picture to realize a truly sustainable
economy and not just produce more renewable energy. In
order to do so we need to:
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Increase connectivity on different
levels: macro-economic level
between countries and sectors
and micro economic levels between
suppliers and off-takers within
communities. This means we need
to both improve grid access and
functionality by investing in
integrated or combined industrial
applications and improve storage
facilities to optimise supply of
clean energy.
“
We need to look at the
bigger picture to realize
a truly sustainable
economy and not just
produce more
renewable energy
•
Improve usage of energy to transition to a sustainable
economy; it is essential to reduce energy demand and
to use energy as efficiently as possible.
•
Join forces and built the sector together; finance and
developers, both individuals and entrepreneurs, need
to find each other in long term relationships with
long term commitments. It is key for investors to
apply a longer horizon than government programs
entail to build the sector for the long term and show
resilience in the short term when programs get
adjusted.
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JUNE 2014
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minded investors entered this clean energy market
already in the 80s. Institutional investors – pension
funds, insurance companies, and other long-term
investors – joined at a later stage and have strong
national focus. However, their approximately EUR 80
trillion in assets form one of the largest pools of private
capital in the world and lead policy makers to ask
whether institutional investors could help meet the
climate change funding challenge. They might be from a
capital size point of view, but from an investment point
a view it’s a different story.
And last but not least, transform to a clearer
understanding that predominantly financial driven
returns are not sustainable in the long term. Return
requirements also include impact driven returns: such
as the amount of avoided burnt fossil fuels,
optimisation of energy mix to safeguard long term
stable energy supply and increased clean energy
generating capacity.
Investment opportunities
Investing in energy is not only a matter of financial return
but also a matter of safeguarding stability of energy
supply and access to energy contributing to a more stable
economic development. There is a significant need for
investors in building the energy sector at this stage since
the level of clean energy is approximately between 4-10%
of the energy demand in Europe. Therefore building the
sector to the desired levels still requires
new money flowing into funds and
more countries are
investment opportunities.
seeking feasible
Also, more countries are seeking
feasible solutions for their energy
solutions for their
requirements and are adding renewable
energy requirements
energy as an additional source of
and are adding
energy. Governments keep setting
targets for renewable energy
renewable energy
production for 2020 and beyond. This
as an additional
will require consistent investment
source of energy
schemes in the coming years. At the
same time, European governments
have scaled back subsidies and support schemes. This is
mainly a result of an ongoing decrease in the amount of
investment capital needed per MWh produced for
renewable energy projects such as solar PV and wind
energy. Renewable energy projects can be realized at
lower costs than in the past and I can therefore see the
justification for modifying stimulus programs. Tightening
national budgets force policymakers to look at private
capital as a key source for funding energy and climate
change related infrastructure.
All in all, there appear to be more opportunities
than ever to invest in renewable energy. Small, impact
Business Case: Can renewable energy outperform
fossil fuel related investments?
The general public started to move towards renewable
energy already a few decades ago by investing in funds
and thus providing risk capital to this sector. Now some
pension funds consider to sell or diminish their exposure
to fossil fuel related companies because of unsustainable
business cases in the long run. Is this a prelude to a large
shift into clean energy technologies and investments in
clean power generation? Does that mean that pension
funds shift investments into renewables or remain with
fossil fuels but differently. Can the business case of
investing in renewable energy compete with investments
in fossil fuels in the short term because of the availability,
lack of fair pricing and transportability?
Institutional investors put clean energy investments in
the category of infrastructure and find their ways of
allocating budget to this sector differently from the way
impact investors allocate their entrusted funds. For the
institutional investor the technology risk has been a
determining factor to step in at later stages or not to
invest in this sector at all. The current developments show
large investors taking over operational assets and
operational portfolios. Impact investors find their ways
through building the sector with experience and long
term track records. Impact investors also position
themselves with their extensive knowledge and long term
experience in defining solid contractual structures and
identifying the risks including all the governmental
programme changes.
”
Projects
Households
Capacity
376
1,480,000
2,280 MW
By the end of 2013, Triodos Group and its climate and energy investment funds were financing 376 projects across Europe,
contributing to a generating capacity of 2,280 MW of clean energy, or enough energy to meet the electricity needs of the
equivalent of 1,480,000 European households during the year, whereby the CO2 reduction equals saving 576 million liter
of diesel fuel.
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JUNE 2014
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by the climate change impact.
Large institutional investors are able
to influence politics and therefore are
able to shift focus. Supporting fair
pricing for amongst others energy will
mitigate a large adjustment at one
point in time and will divide scarce
resources amongst different parts in
the world, and in time, to generations,
more equally. The core business of
pension providers or large insurance
companies is the long term and
therefore it is key they follow impact
investors more intensively since this
last group investigated the risks
already and mitigated the risk with
their type of funding.
Some developments head into highlighting
compelling evidence that fossil-fuel divestment is not only
a moral responsibility, but a feasible and prudent way to
address portfolio risk. More investments become feasible
investments while being fossil-free investing choices that
can deliver solid returns, as well as help address the
climate crisis, advance clean energy development, and
increase the health and wellness of communities.
It is only a matter of time before climate change
regulations and policies will affect the valuation of
companies and businesses related to coals and oil sands
or other fossil fuel activities. And it will become
increasingly important to investors to anticipate for this
change. The energy sector has been influenced by drastic
governmental measures and adjustments and that will
increasingly be the case. However the sustainability of
fossil fuel related activities will eventually decrease driven
“
It is only a matter of
time before climate
change regulations and
policies will affect the
valuation of companies
and businesses related
to coals and oil sands
or other fossil fuel
activities
”
Money can bring about positive change
Triodos Bank has been financing renewable energy for more than 25 years and is a partner of first choice for a relative large amount of developers and investors in the
renewable energy sector. Triodos Bank considers energy to be a basic human need and therefore something that we need to ensure is being generated and used on a
sustainable basis for future generations.
Our priorities
By focusing our attention on the deployment of mature technologies such as wind energy and solar power, we are able to make a meaningful contribution to the
necessary transition to our energy system. Having financed renewable energy projects for over 20 years, we have built up a wealth of experience and expertise that is
valued by the renewable energy developers and operators who we work with. We are also extending our impact by working with more diverse ownership structures
such as community renewable energy schemes and financing energy efficiency infrastructure within the built environment.
Our activities
All of the energy projects that we finance contribute to our vision of a sustainable energy system. Whether through the installation of new renewable energy generation
capacity (from wind, solar or hydro energy) or energy savings and efficiency measures, all of our projects make a meaningful contribution to a more resilient, sustainable
and cleaner energy system.
Example of investment: Silvius Sun
Triodos Renewables Europe Fund has been designed to offer investors the opportunity to actively contribute to the growth of renewable energy production in Europe. It
invests in relatively small-scale European producers of green power, such as wind farms, solar energy power plants, biomass installations and hydropower facilities. One
of the fund’s recent investments is the project Silvius Sun, which consists of 20 roof mounted projects on industrial and agricultural buildings and benefits from the green
certificate regime for solar projects in Flanders. The electricity is primarily off taken by the companies on which roofs the plants are built. The total portfolio is expected to
produce 17,1 GWh in 2013, being the first year that all plants will be operational. This equals an electricity production that is sufficient for approximately 4.887
households. 2014 onwards a production of 18,6 GWh is expected.By investing capital in this portfolio the fund is freeing up capital for the developer SolarAccess to
pursue on development of new renewable energy projects which are amply available in the market. SolarAccess remains aligned as (co) shareholder and manager of the
project.
Example of investment: Dunfermline wind farm
Triodos Renewables plc provides investors with the opportunity to take a direct and rewarding stake in the transformation of the energy system. Triodos Renewables plc
is committed to sensitively siting it’s projects. One third of Triodos Renewables’ portfolio of renewable projects are located on industrial sites. One such project is the
industrial area of the Scottish town of Dunfermline. Triodos Renewables plc has built and operates a single wind turbine on the estate of a heavy manufacturing plant.
The turbine generates sufficient renewable electricity to meet 40% of the manufacturers demand. The power generated by the project is delivered to the industrial host,
offsetting their demand for ‘grey’ grid power. The commercial terms are mutually beneficial to the host and Triodos Renewables plc, allowing the manufacturer to
mitigate it’s exposure to volatile energy cost which represent a substantial component of their production costs. The ability to benefit from competitively priced
sustainable power helps to ensure the manufacturers viability, performing both environmentally and social, helping to maintain employment in the area.
Example of investment: Lake Turkana Wind Power Project
The Dutch based Triodos Groenfonds, one of Triodos’ impact investing funds, has made its first deal for an investment in renewable energy outside of the Netherlands.
The fund is going to invest in the Lake Turkana Wind Power project in Kenya in partnership with the African Development Bank. This wind power project aims to
provide 300MW of reliable, low cost wind power to the Kenya national grid, equivalent to approximately 20% of the current installed electricity generating capacity.
The investment is part of the fund’s aim for diversification of its investment scope. As a result Triodos Groenfonds will allocate up to 10% of the net asset value (NAV) to
finance projects in geographies outside the Netherlands, especially in but not limited to emerging markets, or to provide subordinated debt in the Netherlands and
Europe (the fund now provides mostly senior debt). With this diversification the fund aims to increase its impact in the renewable energy sector.
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