Playing a Role in the Green Energy Transition, Sovereign Wealth Funds and Public Pensions Surge in Renewable Investments
Posted on 10/26/2022
Sovereign wealth funds and public pension funds both acting as policy instruments and seekers of return are betting on the green energy transition theme (the switching from fossil fuels to renewable sources of energy such as wind and solar). Many asset owners are participating by getting their exposure through private infrastructure and energy funds from managers such as Brookfield Asset Management, KKR, and the Blackstone Group. However, a number of cash-rich asset owners continue to partake in direct investment strategies and co-investments. Despite persistent complaints of renewables being an intermittent power source, global asset owners continue to forge ahead and acquire wind and solar assets, while looking for smaller developers to help fund. The centrally-planned orchestration of many public policymakers has helped asset owners prod along in funding renewable energy investments. For example, the European Union wants to have electric vehicles be widely available by 2035. This has catalyzed investors to seek out the metals to produce such batteries at greater demand.
As global leaders look to the COP27 summit in Egypt in November 2022, GCC sovereign investors, Asian wealth funds, and Canadian pension giants have expanded exposure to a wider range of renewable investments.
Sovereign Wealth Funds and Public Pensions – Direct Investments in Renewables – Billions USD
Recreate the search filter on SWFI.com. Industry Type: Renewable Electricity, Green Hydrogen, Renewables, Solar Electrical Equipment, Solar Power, Solar and Wind, Nuclear Energy, Hydropower, Wind Farms, Biomass, Geothermal Energy, Fuel Cells, Electric Charging Station, Battery Storage. Buyer Type: Sovereign Wealth Fund, Public Pension. Deal Type: Deal and New Security Issue. This analysis excludes development financial institutions and credit export agencies. This investor group includes sovereign wealth funds and public pension funds direct investment to the space. 2022 transaction data is YTD (to October 2022).
In 2020, sovereign investors and public pensions directly invested around US$ 5.5 billion in renewables versus US$ 11.74 billion in 2021. Year-to-date for 2022 is US$ 12.5 billion, surpassing 2021’s figure. In recent times, GCC sovereign investors have amped up such renewable efforts. For example, Abu Dhabi-based Mubadala Investment Company acquired in stake in German offshore developer Skyborn Renewables. Large asset owners continue to forge partnerships and ventures with the mega asset managers. For instance, in April 2021, Temasek Holdings and BlackRock Inc. created Decarbonization Partners. Decarbonization Partners invests in net-zero focused companies and firms that can help reduce and potentially eliminate carbon emissions. Decarbonization Partners also accepts third-party capital. In 2022, Temasek Holdings, through Decarbonization Partners, made an investment in Monolith LLC, a Lincoln, Nebraska-based “green hydrogen” producer.
Sovereign funds and Canadian pensions are keen on increasing exposure to renewable energy infrastructure in the Asia-Pacific region. These markets include India, Southeast Asia, and Japan. In 2020, the Abu Dhabi Investment Authority (ADIA), Ontario Teachers’ Pension Plan Board, and the management team of Singapore-based Equis Development Pte Ltd, agreed to invest US$ 1.25 billion in Equis Development Pte Ltd. CDPQ recently made a 20 billion yen commitment in Shizen Energy. Shizen Energy and CDPQ have also agreed to a co-investment framework, which will involve potential investments of 50 billion yen by CDPQ.
State Oil Giants
Saudi oil giant Saudi Aramco, which touts the Public Investment Fund as a shareholder, revealed plans at the Future Investment Initiative (FII) to form a US$ 1.5 billion fund to support an inclusive global energy transition. The fund will be managed by Saudi Aramco Ventures. The Aramco sustainability fund would target investments globally, with initial focus on areas including carbon capture and storage, greenhouse gas emissions, as well as hydrogen, ammonia and synthetic fuels. Saudi Arabia is the world’s top oil exporter.
With that being said, some headwinds on energy transition investments is the economic feasibility of such investments without government help (cheap money from QE or government subsidies). Government can also price carbon, which would increase energy costs on low-income consumers, but that would increase the economic feasibility of renewable energy producers.