The global energy transition is supported by the need to reduce greenhouse gas emissions, high fossil fuel prices, and the increasing importance of energy security. There are various ways for investors to invest in climate change strategies each with its unique risk and return profile. Lower-risk infrastructure debt and project finance investments can be balanced with public and private equity, along with venture capital, to gain exposure to the energy transition.
Fundamentals for Clean Energy Remain Strong
Countries around the world have put forth policies to achieve renewable energy targets and reduce greenhouse gas emissions. From the phasing out of combustion engine vehicles to the mandating of clean energy targets for industry, the move to net zero is creating forced demand for clean technology solutions and renewable energy.
We think that cleantech venture capital funds, equities of utility companies and battery companies, along with infrastructure and project finance debt will deliver attractive risk-adjusted returns for investors. The highly technical nature and long lead time to market for clean tech solutions and industry adoption make it vital to focus on fund managers with an extensive background in the specific niche.
Funding Gap Presents Opportunities for Investors
Developing countries will require over $2 trillion U.S. dollars of infrastructure spending per year over the next 15 years. It appears highly unlikely that governments in emerging markets will be able to raise enough funds to meet their infrastructure needs with existing tax revenue.
Private fund managers and Public-Private Partnerships (PPPs) can be a viable alternative for municipalities and developers seeking private capital and investors can expect returns of between 7% and 12% depending on the project off-taker.
An estimated $5.5 trillion of incremental investments will be required by 2050 to achieve net-zero emissions, with $1.6 trillion needed for the energy transition. Median returns for cleantech venture funds have been strong with energy optimization, electric mobility, and energy storage leading the way.
Our Outlook Remains Positive
We have a positive outlook for renewable energy and clean technology investments over the next 12 to 18 months. We continue to like infrastructure debt and private equity, along with investments tied to power purchase agreements or energy grid infrastructure. For investors with higher risk tolerance, the public and venture equity of EV charging infrastructure companies should likely deliver alpha over a three to five-year time horizon. Please contact us to learn more about investing in the energy transition.
