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Renewable energy generation is seeing substantial growth and capital inflows globally, driven by decarbonisation goals and increasing competitiveness compared to traditional power generation. There are however fundamental risks such as power price volatility and regulatory uncertainty, while returns are being compressed due to investor demand. JANA’s Infrastructure team recently held a webinar where it outlined the broad landscape of renewable infrastructure strategies, identified key risk/return challenges for equity investors and discusses areas of relative value within the renewable infrastructure universe, and this article summarises the key points from that presentation.
Globally one of the most significant transitions going on right now is the shift from fossil fuel power towards renewable power. This transition is being seen across developed and emerging markets, from large scale installations of solar and wind power in India and China, to early announced retirements of coal fired power plants in Australia. Growing concerns around climate change, increasing competitiveness against fossil fuel power, strong investor and government demand for clean energy and technology improvements, are the key drivers of this trend and have led to massive capital inflows into renewable energy infrastructure.
JANA’s infrastructure team closely tracks the renewable energy infrastructure landscape through ongoing conversations with major global renewable energy managers and advising clients on renewable energy co-investments globally. We believe that the energy transition represents a significant opportunity for infrastructure investors, however renewable energy investments are subject to a number of material risks including regulatory changes, political uncertainty, and competitive power markets, all against the backdrop of a fundamental and rapid technology transition impacting the entire power sector. Strong investor demand for renewable energy assets has also driven down returns and led to a mispricing of risks. As a result, investors need to be highly selective of renewable energy investments at this point given the risks and downwards pressure on returns, and focus on areas that can still offer a reasonable risk adjusted return.
Our research into renewable energy strategies and investments highlights the following key risks at this point:
The above risks and currently aggressive pricing for renewables requires infrastructure investors to be highly selective with renewable energy assets. We however continue to see select opportunities that are attractive from a risk-return. These include –
The transition towards renewable energy is one of the most significant transitions of our time and will involve significant capital investments particularly from infrastructure investors. Given the underlying risks though and currently exuberant pricing for renewable assets, investors need to be highly selective with renewable energy investments.
JANA can work with client teams to further discuss our view of renewable energy infrastructure and identify investments that fit well into client portfolios.
Click here to watch the recent JANA Webinar: Investing in Renewable Energy Infrastructure.
Sydney
9/255 George Street,
Sydney NSW 2000
02 9221 4066
JANAadmin@jana.com.au
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Melbourne VIC 3000
03 9602 5400
JANAadmin@jana.com.au