More than six out of ten (61%) institutional investors in Europe expect to increase their exposure to renewable infrastructure, with nearly half of them (48%) expecting further investments into offshore wind, according to a new study commissioned by alternative investment firm Aquila Capital.
A further 30% of investors plan to maintain their exposure to renewables over the next three years, with just 3% of respondents predicting a fall in allocations.
The research shows that nearly half (48%) of respondents cited portfolio diversification as the main reason for investing in renewables, closely followed by reliable long-term cash flows (44%) and portfolio returns (43%). Environmental factors were cited by only (22%) of investors as their primary driver.
Exactly half (50%) of investors have a positive outlook for renewable infrastructure, including 9% who are very positive. A further 43% have a neutral outlook for the asset class and only 7% are somewhat negative, half the number compared to the previous year.
Investors’ biggest concerns about renewable infrastructure are its limited scalability and investment volume, cited by 38% of investors, followed by regulatory hurdles (37%) and the experience and track record of the managers of the assets (36%).
New technologies applied to thermal, geothermal and biomass are set to attract the biggest increases in investor allocations over the next three years: 59% of institutional investors say their peers will be backing these emerging subsectors with 9% predicting a dramatic rise; over half (54%) expect investors to increase their exposure to hydropower, and 49% to solar.
The majority (64%) of European institutions have some exposure to renewable infrastructure and currently allocate an average of 4% to this asset class but the study suggests these figures are set to rise, including 11% who believe the increase will be ‘significant’.
“The survey shows that investors’ appetite for renewable infrastructure as a way to generate yield and improve portfolio returns is continuing to go from strength to strength,” Roman Rosslenbroich, CEO of Aquila Group , said.
“We are also seeing investors taking a more sophisticated view towards their renewable allocation strategy with increasing numbers opting to build a diversified portfolio offering exposure to different subsectors, including hydropower. Typical correlation levels to other renewable energy investments such as wind power and photovoltaics are low and their long-term cash flows are uncoupled from traditional asset classes such as equities and bonds.”