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Lack of regulation a ‘key obstacle’ to renewable investment

960 640 Stuart O'Brien

Research from Downing LLP has identified liquidity constraints and insufficient regulation as the key barriers to investment in renewable energy for UK pension funds, other institutional investors and wealth managers.

Downing offers both institutional and retail investors the opportunity to invest in renewable energy and other infrastructure in the UK and northern Europe.

A survey of 100 UK professional investors, who collectively manage around £118 billion in assets under management, reveals 75% say a lack of liquidity in certain areas of the renewable energy sector is the main barrier to investment. Seventy per cent say regulation needs to improve while the same number cite high costs as an obstacle to investment in renewables.

More than half (54%) say there is not enough transparency in the renewable energy asset class, while 31% say there is a lack of track record or data in certain areas.

Nearly all (94%) of institutional investors and wealth managers say the renewable energy sector will become more attractive in the next three years, with 45% saying it will be much more so and 49% saying slightly more attractive.

When asked to pick their top three reasons for the sector becoming more attractive to investors, almost three-quarters (71%) highlight the macro-economic environment e.g., high inflation and more volatility. At the same time, half cite a predicted fall in fixed income yields.

Some six out of ten professional investors (61%) include expected regulatory changes, encouraging decarbonisation in their top three factors, making renewables more appealing to investors.

Nearly half (46%) include tougher regulation against oil and gas companies in their top three reasons.

Liquidity too is expected to improve with 62% of respondents anticipating more investment opportunities in renewable energy.

Tom Williams, Head of Energy & Infrastructure at Downing and manager of Downing Renewables & Infrastructure Trust, said: “Renewable energy is gaining more importance to institutional investors and wealth managers as they consider the climate change risk to their portfolio. However, the asset class needs to be more transparent, lower cost and be supported by appropriate regulation. Transparency is one of the key reasons why Downing Renewables & Infrastructure Trust chose to become an Article 9 fund.”

UK investors and wealth managers increasing their allocation to renewables

960 640 Stuart O'Brien

Research from Downing LLP (Downing) has revealed a dramatic increase in focus on renewables from UK pension funds, other institutional investors and wealth managers.

Downing offers both institutional and retail investors the opportunity to invest in renewable energy and other infrastructure in the UK and northern Europe.

Its survey of 100 UK professional investors, who collectively manage around £118 billion in assets under management, reveals 80% increased their allocation to renewables over the past 12 months with 26% making a dramatic increase while 54% made a slight increase.

Nearly all (97%) of the respondents say they will increase their allocation to renewable energy in the next year.

Henrik Dahlstrom, Investment Director at Downing Renewables & Infrastructure Trust, said: “As the renewables sector develops, it increasingly illustrates several features that investors find very attractive, especially in the current environment of low yields and rising inflation – both issues renewables can help investors to address.”

Downing’s research found all renewable energy sectors are expected to attract more investment, and when asked to select their top five reasons for this, three-quarters (74%) of professional investors surveyed cite the asset class’s recent strong performance, and the de-risking potential in volatile markets (69%).

Other attractions of investing in renewable energy included the diversification potential (67%); improved regulatory environment for investing in renewables (67%); a growing focus on decarbonisation from pension funds and wealth managers (62%); improved liquidity (60%); a good hedge against inflation (55%); and a greater pressure to invest in renewables (46%).

The sectors most likely to attract increased investment are as follows:

  Increase dramatically Increase slightly Stay the same Decrease
Wind 39% 40% 21% 0%
Solar 38% 18% 41% 3%
Hydro 41% 44% 13% 2%
Biomass 38% 46% 9% 7%
Tidal and wave 29% 47% 23% 1%

Dahlstrom added: “Renewable energy is central to UK institutional investors and wealth managers as they set responsible and ESG investment strategies. We have long capitalised on the diversification benefits of investing in renewable energy and as inflation bites and market volatility continues, allocating to the asset class will become even more important.

“It is important that investors can find genuine investment opportunities that help them meet their ESG credentials. Our investment trust DORE, for example, is one of the few funds classified as an Article 9 fund under the EU’s Sustainable Finance Disclosure Requirement (SFDR), which means we make impactful investments and have specific Sustainable Investment Objectives.”

Over the last 12 years, Downing has invested in more than 175 core renewables projects across Europe.

These renewable energy investing projects have stable, predictable, long-term cashflows and are often wholly or partly linked to inflation.

UN urges G20 countries to invest in nature-based climate change solutions

960 640 Stuart O'Brien

A new report, titled The State of Finance for Nature in the G20, stresses the urgency of increasing net-zero and nature-positive investments if the world is to adequately close the climate finance gap.

The report is led by the UN Environment Programme (UNEP), the World Economic Forum, the Economics of Land Degradation, hosted by the Deutsche Gesellschaft für Internationale Zusammenarbeit in collaboration with Vivid Economics.

It further amplifies the findings from the global report State of Finance for Nature – Tripling Investments in Nature-based Solutions by 2030, released last year, which calls for closing a $4.1 trillion financing gap in nature-based solutions.

The new report reveals that the spending gap in non-G20 countries is larger and more difficult to bridge than in G20 countries, but only 2% of the G20’s $120 billion investment has been directed towards official development assistance (ODA). Similarly, private sector investments remain small, at 11% or $14 billion a year, even though the private sector contributes 60% of the total national GDP in most G20 countries. Thus, the business and investment case for nature needs to be stronger.

The report also discloses that G20 investments represent 92% of all global investments in nature-based solutions in 2020. Furthermore, the vast majority of these G20 investments, 87% or $105 billion, were distributed to domestic government programmes.

Annual G20 investments in nature-based solutions need to increase by at least 140% to meet all agreed biodiversity, land restoration and climate targets by 2050, which means an additional $165 billion a year, especially in ODA and private sector spending. To put this into perspective, more than $14.6 trillion was spent by 50 leading economies in 2020 in the wake of the COVID-19 crisis, of which only $368 billion, or 2%, was considered “green” by a 2021 UNEP report.

Globally, future investment in nature-based solutions needs to increase fourfold by 2050, equating to an annual investment of over $536 billion a year. The future investment needs for G20 countries account for approximately 40% of this total global investment in 2050. G20 countries have the capacity to meet this investment need as they carry out most of the global economic and financial activity with fiscal leeway.

Justin Adams, Director for Nature-Based Solutions, World Economic Forum, said: “The climate and nature crisis are two sides of the same coin, and we can’t turn things around unless we transform our economic models and market systems to take nature’s full value into account.”

The new report also calls for G20 member states to seize opportunities to increase investment in non-G20 countries, which can often be more cost-effective and efficient than investing in similar nature-based solutions internally.

Nina Bisom, Coordinator of Economics for the Land Degradation Initiative, said: “In many instances, G20 countries can improve economic efficiency in nature-based solutions spending by targeting investments in non-G20 countries. For example, the average cost of converting land from other uses to nature-based solutions in G20 countries is $2,600 per hectare, while the same costs are only $2,100 per hectare for non-G20 regions.”

Ivo Mulder, Head of UNEP’s Climate Finance Unit, said: “To scale up private finance, governments can boost the investment case for nature, for instance, by creating stable and predictable markets for ecosystem services like agriculture, forestry or by employing concessional financing.”

He added: “Systemic changes are needed at all levels, including consumers paying the true price of food, taking into account its environmental footprint. Companies and financial institutions should fully disclose climate- and nature-related financial risks, and governments need to repurpose agricultural fiscal policies and trade-related tariffs.”

The report concludes that governments need to truly “build back better” following the pandemic. Many developed countries can borrow cheaply in international capital markets. Thus, they need to tie in “nature and climate conditions” when providing fiscal stimulus to sectors across their economies, as well as creating more favourable regulatory, fiscal and trade policies to transition economies so that international biodiversity, climate and land degradation targets are met. G20 nations have the ability and means to lead by example.

CENTRICA: UK firms to invest £15.8bn in EVs this year

960 640 Stuart O'Brien

Research conducted by Centrica Business Solutions has revealed that UK firms spent £10.5bn on electric vehicles (EVs) and on-site charging points during the year to March 2021, and are now planning £15.8bn of investment in the same area over the next 12 months – a 50% increase year-on-year.

Two fifths (40%) of those questioned said they had increased the total number of EVs within their fleet between April 2020 and March 2021.

Of these businesses, six in ten (58%) cited the need to meet corporate sustainability targets as the biggest driving factor behind their increased adoption of EV, followed by reducing operational disruption caused by low and zero-emission zones (51%) and the attraction of the lower maintenance and whole-life costs offered by EVs (37%).

Four in ten (43%) businesses hadn’t increased EV numbers at all and 10% decreased their EV fleet size. Range anxiety was reported as the chief concern for a third (34%) of these firms, followed by the need to prioritise business investment elsewhere during the height of the coronavirus crisis (32%).

Despite this, two-thirds (67%) of all companies polled claimed they are well-prepared to operate a fully electric fleet by 2030, when the Government’s ban on the sale of petrol and diesel vehicles comes into effect.

46% of businesses polled plan to install charging points on their premises to facilitate the uptake of EVs across the next twelve months, although more than a third (37%) have already installed this infrastructure. The research also revealed that three in ten (30%) firms have already invested in on-site technology capable of generating the energy to charge their fleet of EVs, such as solar panels, while almost half (48%) plan to do this in the future. 

Greg McKenna, managing director of Centrica Business Solutions, said: “Despite the disruption of the past year, it’s encouraging to see investment in EVs remain a key priority for many businesses. The fact that firms are planning to increase their spending so dramatically over the next 12 months is proof that more businesses are recognising the advantages of adopting low-emission vehicles, especially as they recover from coronavirus and seek to create sustainable growth.

“Now that 2030 is set in stone as the end of new petrol & diesel sales we need to ensure three things to help get us there, sufficient electric vehicles to meet demand, reliable charging infrastructure that’s available to all and a flexible energy system that can deliver green power where it’s needed.”

Rachel Maclean, Transport Minister, said: “As we accelerate towards our net-zero future, I’m delighted to see UK firms at the forefront of the electric vehicle revolution.

“With British businesses set to increase their investment in electric vehicles by 50%, the message is clear – the future is electric. With generous government grants and tax incentives which could save drivers over £2,000 a year, there has never been a better or more exciting time to make the switch.”

EIB pledges €3.4bn for climate action and clean energy

960 640 Stuart O'Brien

€3.4 billion of new financing has been approved by the European Investment Bank (EIB) to accelerate the shift towards renewable energy and sustainable transport, corporate innovation, improved housing, education and communications.

€2 billion to harness wind and solar power

The bank’s Board of Directors of the EIB approved financing for the development of renewable energy projects in France and Germany, the increase the use of solar power by home owners across Spain, wind power in Ireland, upgraded energy distribution in Italy, and a pioneering photovoltaic plant that uses batteries and hydrogen to store energy.

€700 million to improve public transport

The EIB also agreed to back the acquisition of a fleet of hydrogen powered trains including the installation of hydrogen refuelling facilities in the Netherlands and to upgrade regional rail services in Germany. The EU Bank also approved financing to increase use of renewable energy at airports across Spain.

€720 million for COVID-19 economic resilience, business investment and corporate innovation

As part of the rapid response to COVID-19, the EIB Board agreed new financing to accelerate investment by companies most impacted by the pandemic in the Netherlands, Belgium and Luxembourg.

The EIB also backed support for corporate research and development in Germany, expansion of online digital business activity in France, and backing for climate related investment by companies across Poland.

€837 million for education, housing, communications, water and sustainable urban investment

The EIB approved investment to construct and modernise energy efficient social and affordable housing in northern Italy, upgrade urban and regional infrastructure in the Czech Republic, and improve communications in Poland and North Africa.

Financing also went to strengthening the supply of drinking water in Paris and upgrade drinking water supply and wastewater treatment in Vilnius.

Technical education across the Ukraine will be improved by the modernisation of 13 vocational education and training centres agreed by the EIB today.

Overview of projects approved by the EIB Board

“The green transformation of the global economy gathers speed. The green energy and sustainable transport projects approved by the EIB, the EU’s climate bank, today demonstrate the vision, ambition and partnership needed to slash greenhouse gas emissions this decade and beyond. I am thrilled that this week the European Union agreed to be climate-neutral by 2050. Tomorrow President Biden will host world leaders and renew the shared determination to fight the climate crisis. The return by the US to the community of countries committed to the Paris Agreement goals and to climate action is hugely welcome news, an essential and urgent step toward multiplying the effect of individual actions through global cooperation”, said Werner Hoyer, President of the European Investment Bank. 

£90 million government boost for green aerospace manufacturing

960 640 Stuart O'Brien

The government says 1,400 jobs could be secured across the UK thanks to nearly £90 million investment in aerospace manufacturing.

The government-industry funding for the five projects through the Aerospace Technology Institute Programme aims to improve manufacturing within the aerospace industry, developing technology to make production lines quicker, more efficient, and more cost-effective.

A particular focus of the project proposals is on creating lightweight materials and parts that will reduce how much fuel is used and that can be adopted onto future hybrid and electric planes. This, the government says, will help the wider aerospace industry build back greener as it innovates and adapts to more sustainable travel over the next few decades.

This will help safeguard the UK’s manufacturing sector, ensuring that the UK remains a competitive market for aerospace companies as it recovers from the coronavirus pandemic.

Successful projects could help to secure approximately 1,400 jobs across the UK, from Bristol to Belfast, and South Wales to Somerset, improving local growth and benefitting communities.

Minister for Business Paul Scully said: “This multi-million-pound cash injection will safeguard vital jobs and support the aerospace sector as it builds back stronger after the pandemic.

“Manufacturing is at the very heart of UK industry, and innovative processes will ensure that the UK is at the forefront of global efforts as we develop technology that can power a green aviation revolution.”

Projects receiving funding today include:

  • GKN Aerospace-led ASCEND [Bristol]: With McLaren Automotive also joining the consortium, the project is seeking to develop and accelerate new lightweight, composite technology, including parts for aircraft wings, in the aerospace and automotive sectors, and improve supply chains for more sustainable future mobility solutions.
  • Renishaw-led LAMDA [Gloucestershire]: The project will develop a 3D metal printing machine to mass produce smaller components for aircraft, increasing production and consistency and reducing costs. Manufacturing will take place in South Wales.
  • Q5D-led LiveWire [North Somerset]: The project will create a machine that can automate the manufacture of wiring and embed it into aircraft parts including airline seats or even a control panel in a flight deck, reducing costs and making lighter, higher-quality components. The technology will provide new employment opportunities in the UK, and on-shore jobs previously undertaken abroad.

Aviation Minister Robert Courts said: “Net Zero aviation is the future and this cash injection will boost capabilities as we look to build back greener and make businesses sustainable in the future.

“We are committed to working closely with industry, including through the Jet Zero Council, to accelerate the development of new aviation technology and Sustainable Aviation Fuels to help us realise net zero flight.”

The government will help advance the UK’s future transport system through its extensive R&D Roadmap and to increase R&D public spending to £22 billion per year by 2024/5. This investment comes ahead of the consultation on the Aviation Decarbonisation Strategy this year, set out as part of the Prime Minister’s Ten Point Plan for a green industrial revolution, with jet zero and low carbon aviation as a key pillar to building back greener.

The announcement of grant winners forms part of a wider £3.9 billion government-industry investment in aerospace research and development projects from 2013 to 2026 through the Aerospace Growth Partnership and delivered through the ATI Programme.

EDF doubles down on energy storage with PowerUp investment

960 640 Stuart O'Brien

Cleantech sector startup PowerUp has completed a new round of funding worth €5m from Supernova Invest, business angels, and the EDF Group.

Founded in 2017, France-based PowerUp has developed a breakthrough technology based on more than ten years of research by CEA-LITEN (innovation laboratory for new energy technologies), as well as on a total of 7 patents.

Its solutions aim to optimise the performance and lifetime of lithium- ion batteries in order to enhance the reliability and competitiveness of future energy storage systems.

EDF Pulse Croissance’s investment in PowerUp is part of the EDF Group’s Electricity Storage Plan, which targets the installation of 10 GW of new storage capacity by 2035.

The investment in PowerUp reaffirms EDF’s desire to be a major player in the energy transition and in low-carbon generation.

This new display of confidence is aimed at enabling it to continue its growth in France and Europe. It also marks the start of a new era: PowerUp says it’s is now ready to tackle the energy storage systems sector, a new international market for the firm.

Carmen Munoz, Director of downstream activities, EDF R&D, said: “EDF R&D’s expertise in batteries, which spans more than 20 years, coupled with PowerUp’s innovative technology and market understanding, will ensure further progress towards the development of a more effective solution, while also boosting competitiveness.”

Josselin Priour, CEO and Co-founder of PowerUp, added: “With this fundraising round, PowerUp is entering a new era. In 2021, we will be embarking on a phase of increased production, and this capital will support our growth. In addition to securing our leadership position in France, we aim to grow our business in Europe and North America. Behind this growth lies a real need: more than ever before, we need to increase the lifetime of our batteries to ensure greener energy production.”

Insurers eye ‘billions of pounds’ in clean energy investments

960 640 Stuart O'Brien

The insurance industry has put forward ideas to make it easier for the financial sector to invest in greener assets, which it says will unlock billions of pounds worth of funds to tackle climate change.

According to the Association of British Insurers (ABI), the UK’s insurers alone hold over £1.8 trillion in invested assets, plus trillions more managed by investment firms and banks.

However, it says only 1.2% of all assets under management in the UK are invested in greener projects such as renewable energy, collectively known as ESG (Environmental, Social and Governance) Assets.

The ABI says a number of obstacles prevent insurers and other asset managers from increasing this proportion, most notably:

  • There is a shortage of high-quality and consistent ESG data throughout the financial system, making it difficult for investors to either manage their exposure or identify the best opportunities for green investment.
  • With its focus on a one-year solvency measure, the current prudential regime for insurers doesn’t adequately reflect the long-term nature of insurance. The Solvency II rules effectively disincentivise insurers from investing in the kind of long-term, sustainable projects that could help mitigate the impacts of climate change.

As such, the ABI is proposing ways to address these issues in a consultation response to the Prudential Regulation Authority, while also supporting proposed FCA guidance to increase the consistency and comparability of climate change related financial disclosures.

On data availability, some insurers are developing their own approaches and specialist teams but it’s feared a piecemeal approach will take an unnecessarily long time.

Instead, the ABI says there is a role for the regulators to play across the full breadth of the financial sector to help improve the availability and consistency of data relating to the firms and initiatives insurers may want to invest in.

Regarding the regulatory regime, the ABI is proposing more is done to take sustainability factors into account when considering assets, particularly given the good match between longer-term investments and insurers long-term liabilities.

Enabling this, it says, should be a key focus of the Solvency II 2020 review which is just getting under way, and is something the UK could take steps on independently once we leave the EU.

Steven Findlay, Head of Prudential Regulation at the ABI, said: “Insurers are more aware than most of the increasing threat posed by climate change, given they are in the business of identifying future risks and working out how best to mitigate them. When extreme weather events happen, they are at the forefront of picking up the pieces. As a sector which holds over £1.8 trillion in invested assets, they are also in a unique position to be able to seriously boost new, greener technologies and energies. They want to be able to do more of this, and it is very encouraging that the PRA shares these goals.

“Moving our world towards a lower carbon economy is in the interests of everyone, which is why we are setting out some steps to help unlock billions of pounds of investment for innovative, greener projects. But we have to be practical about what will make a difference. Those responsible for managing assets need to be able to demonstrate to their boards and their shareholders that greener investments are good for their balance sheet, not only the planet. The industry, through initiatives like the recent ClimateWise Transition Risk Framework, is already taking positive action; regulatory changes to give insurers more freedom to invest in sustainable assets would also be a step in the right direction.”