Friday Highlight  

The investment opportunity in clean energy

Broadly speaking, governments are behind the development of the industry as part of efforts to reduce reliance on fossil fuels and a clear ‘green agenda’.

The UK government, for example, recently committed to increasing the use of renewable energy and outlined aims to generate a third of the UK’s electricity via offshore wind farms by 2030.

Even in the US, where the President appears less than enthusiastic about the battle against climate change, tax incentives exist to stimulate increased development of renewable energy capacity.

The drive towards lower carbon emissions is being taken on at state-level and also by large corporations.

In California, home to 12 per cent of the total US population, the adoption of renewable energy is advancing rapidly and the state has signed into law a requirement for 100 per cent of its electricity to be produced from renewable sources by 2045 – a goal also set by Hawaii and being discussed by other states. 

The scale of development across the globe should provide a bigger pool of assets and expand the universe of investment opportunity available. Risks do exist, of course; the sector relies on governments to honour their commitments in relation to subsidy support, for example.

In addition, long-term power purchase agreements – the mechanism through which generators sell their output – do have potential counterparty risk, as evidenced by the recent bankruptcy of PG&E in the US. 

On balance, however, we believe there are many attractive opportunities within this growing sector and investors can target investment towards companies operating in the more utility-like renewable energy generation space, those developing new technologies to facilitate the transition towards a more sustainable, lower carbon world or a combination of both. 

Will Argent is fund adviser to the VT Gravis Clean Energy Income fund