Last year, the International Energy Agency (IEA) revealed global investments in clean energy is set to reach almost double the amount going to fossil fuels in 2024.
IEA’s annual report – World Energy Investment – revealed the total investments in clean energy sources worldwide is expected to exceed $3trn (£2.4trn) in 2024 for the first time, with $2trn (£1.6trn) to be funded toward technologies including renewables, electric vehicles, nuclear power, grids, storage, low-emissions fuels, efficiency improvements and heat pumps.
The IEA said this is due to improving supply chains and lower costs for clean technologies, and the momentum has continued. As a recent report by LCP Delta revealed, solar energy projects have especially seen increased investments, with solar power buyers in the UK have “experienced a lucky streak of profitability” through the Power Purchase Agreement (PPA) market over the past three years.
This is due to a significant increase in solar and renewable energy projects, totalling a 25% increase in 3 Gigawatts (GW) of clean energy generation capacity from 2021 to 2024. This progress contributes towards the governments’ goal in the Clean Power Action Plan to reach up to 47GW by 2030, suggesting that an increased investment in solar projects is driving the renewables sector.
Further, investment firms have taken their own initiative to move the needle further. This includes the firm Schroders, where last summer, they unveiled a solar panel farm at its Horsham campus to help meet its target to source 100% renewable energy by 2025. The farm boasts an impressive 2,606 solar panels, and generates 1.13MWh/year of electricity – and marks a step closer to meeting the firms’ ambitious climate targets.
Both Cordiant Capital, a global infrastructure and real assets manager who specifically invest in specialises in renewable energy projects, and Amber Infrastructure, which manage the US Solar fund (USF), however highlighted how US politics has “increased uncertainty” in the solar space, but emphasised investing in solar is key to avoid the costs of climate change adaption.
Solar capacity
Through Cordiant’s Energy Transition Direct Lending strategy, the firm looks to provide capital to underserved segments of the energy transition investment landscape targeting gaps in financing which may be difficult to fill through traditional means. This, Emmanuel Braoudakis, managing director, head of energy transition at Cordiant Capital told PA Future, facilitates an orderly energy transition presents to provide not only “significant environmental and social benefits, but also economic ones” as “the cost of adaptation to future climate events is likely to far exceed the cost of the energy transition”.
Recently, Cordiant Capital partnered with Green Genius to develop four solar power plants with a total capacity of 32.6 MW in Lithuania. The firm provided a debt facility to support the construction and operation of a ~33MW portfolio of solar projects in Lithuania owned by Green Genius.
Braoudakis said the firm invested in Lithuania specifically for two reasons. First, Lithuania is “transitioning to renewable energy at unprecedented speed” and the firm seeks to take advantage of this transition, especially since the region looks to deliver the EU’s decarbonisation, and, more recently, energy security targets.
Second, he said the region has “attractive remote solar regulation” that allows power consumers – generally mid-sized business – to sign virtual power purchase agreements with grid-connected renewable energy assets, irrespective of the distance between them.
He explained: “The regulation currently allows for net-metering, where the power consumer is able to consume the power generated under its offtake agreement when needed, rather than when generated.
“This structure is particularly compelling for both the generator and consumer of power given the generation profile of solar power and the resulting intra-day price swings being seen across Europe as more solar capacity comes onto the grid.”
When PA Future asked about why investing in energy infrastructure is so important right now, Braoudakis said this is due to “energy security concerns, which has driven investment into domestic energy infrastructure, particularly in Europe following Russia’s invasion of Ukraine.”
However, he also noted the increased power consumption by new data centres supporting the development of artificial intelligence (AI) has “led to an unprecedented need for investment in energy infrastructure”.
Braoudakis predicted the energy transition will remain “anything but static” due to new trends requiring adaptation, new technologies to understand and new market challenges to be overcome.
However, he noted political climates have increased uncertainty, especially upon currently seeing a rollback of climate commitments in the US. Yet, he remains optimistic, and said: “There have been record levels of global renewable energy deployment and continued strong investor appetite in the space.”
Fund microscope
Similarly, Tom O’Shaughnessy, head of North America at Amber Infrastructure, manager of the US Solar fund (USF), agreed one of the main challenges faced when investing in solar is politics – particularly since the fund is a US company.
The USF is an investment trust that aims to provide investors with attractive and sustainable dividends by investing in a diversified portfolio of utility-scale solar power assets in North America. It acquires develops and/or constructs, owns and operates solar power assets that are expected to have an asset life of at least 30 years, and its portfolio currently consists of 41 projects across four states and with a combined capacity of 443 MWDC.
O’Shaughnessy said: “The solar space is navigating a period of increased uncertainty, particularly within the US where changes to federal policies are being considered under the new Trump administration.
“The US solar sector is bracing for potential impacts as the Trump administration introduce additional unknowns into the outlook for new projects, and the impact that the potential changes to federal funding may have on the development of new solar projects is still unclear.
“For assets that are yet to be constructed and energised, additional uncertainty is seldom helpful or value accretive. The outcome could be that the deployment of new solar undershoots the projections made for 2025 and beyond.”
However, he pointed to the opportunities within solar investment, noting that “existing operational projects are not likely to be impacted by any of the new administration’s proposed changes. Rather, the impact may be positive as the supply of new renewable electrons fails to meet demand leading to price increases”.
Overall, he is hopeful for the sector, yet, wants to see a clearer distinction between operational solar assets and development phase assets that would help investors differentiate the risks related to different phases of owning a solar asset.
He explained: “During the development phase the number of risks and likelihood of a risk materialising is often significantly higher than during the operational phase. Higher returns and higher overall risk of a capital loss should be expected when investing during the development phase.”
