Reallocating Energy Investments?

total investment in clean energy

Renewable Energy Finance 101

A new report from the American Council on Renewable Energy [ACORE] and the United States Partnership for Renewable Energy Finance [US PREF] delineates public and private investment opportunities. In eleven pages, most of them charts or graphs, the report makes renewable financing terms and opportunities accessible to anyone. It is a needed thesaurus of renewable energy finance terminology.  

As an example, in a two tables the report outlines such things as market size, range of returns, yield and investment considerations for private equity-venture capital, project-level-infrastructure equity, debt-fixed income, equities, YieldCos, green bonds, and mutual and exchange traded securities.This is a helpful summary providing interested investors with a place to start.

Where Are Investments Coming From?

In a telling chart, the report shows the amount of private investment flowing into the space. The large blue bar on the right is asset finance, that is new investment, acquisitions, and refinancing. The rest includes government & corporate research and development, new investment corporate mergers and acquisitions, venture capital and private equity, and public markets--that is new investments and investment exits. To put 2014 in perspecive, according to the US. Bureau of Economic Analysis, $339 Billion is well over twice the entire Gross National Output (GNO) of nonmetallic minerals products, which includes concrete, bricks and cement, cut stone, abrasive products, and glass. It is 29 times that of computer manufacturers, and about 75% that of all US physicians. 

An important take-away from this chart is that small amounts of government support is attracting large private capital. For those who are still skeptical that renewables can't 'make it on their own', this report provides compelling argument to the contrary..

5 reasons to invest in renewable energy

  1. Investing in Clean Energy presents an opportunity to deploy capital at scale in an established and growing sector.
  2. Investors are increasing allocations to the Clean Energy sector to capitalize on investment opportunities that offer attractive returns and are aligned with the trend towards a less-carbon intensive economy.
  3. Investors are considering reducing their focus on fossil fuel investments to underscore the importance of addressing climate change and to mitigate the potential for long-term portfolio performance degradation from future financial risks associated with companies or projects in the sector.
  4. The range of Clean Energy investment opportunities is growing across all asset classes, becoming easily accessible to investors, and can meet a diverse set of investor objectives and portfolio allocation targets.
  5. Since 2012, Clean Energy indices have performed favorably relative to S&P 500, NASDAQ, and fossil fuel indices

The report points out a few major institutions such as Axa Insurance, The Rockefeller Brothers Fund and Stanford University have chosen to divest of fossil fuel stocks. lists 27 US Colleges and Universities; 34 US Cities; 2 Counties; over 50 local, regional and national church groups; and over 50 Foundations,charitable trusts and nonprofits.

While many invest in new energy projects as well as fossil fuels, divestiture indicates a concern among private financial institutions. These institutions, all of which have a fiduciary duty to their stakeholders, do not take such steps lightly. Of those that divest, ~ 85% do chose to invest in alternative energies: renewables and efficiency. 

The report is a primer. It could be called "Renewable Energy Investment for Dummies" but in reality it is combating public misinformation built up over the last ten years.With investments in the multi-billions, and projected worldwide to be in trillions, now is a good time to start thinking how to incorporate strategies that meet portfolio goals, while helping create a more energy secure future.