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Fundraising for Renewable Resources Exceeds Conventional Energy

A Preqin report shows fundraising for conventional energy has fallen significantly from its 2015 peak.

  • Alicia McElhaney

Investor interest in renewable energy is swelling less than two years after the Paris Agreement was signed to protect the environment globally.

Renewables-focused funds have raised $5 billion this year, outstripping fundraising targeting conventional energy for the first time, according to a Preqin report Wednesday. Fundraising for conventional energy has fallen significantly from its $38 billion peak in 2015, when renewable funds attracted $13.8 billion globally.

Trump’s decision to pull the United States out of the Paris Agreement, an historic international accord on climate change that world leaders adopted in 2015, isn’t likely to stop allocators from investing in renewable energy.

“As managers, when you look at renewable energy it’s less about policy,” Tom Carr, head of real assets products at Preqin, said by phone. “Now it’s sort of more about the economics behind it. Investments in renewable energy actually make business sense now.”

Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis said he views renewable energy investing as a race horse already long out of a gate. And while “Trump says we don’t want to be part of this race,” his move likely won’t have an impact on investing in renewables, Sanzillo said.

Institutional investors were quick to denounce the president’s decision last week, with California Public Employees’ Retirement System and the California State Teachers’ Retirement System reiterating they stood by the Paris Agreement. Last month 217 institutional investors representing $15 trillion urged world leaders to stand by the accord, which requires nations to reduce carbon emissions to keep global warming below 2 degrees Celsius.

The median net internal rate of return from renewable energy investments is just under 5 percent since 2003, less than half the 10.3 percent median net IRR from nonrenewable sources, according to Carr. Still, what matters more is that renewable energy investors are now finally seeing returns. And while investments in nonrenewable energy sources, such as oil, natural gas and coal, have higher returns, Carr noted that these carry a greater risk. This is because renewable sources of energy tend to be more predictable, which makes expected returns more stable, he added.

Sanzillo agreed, noting that renewable energy investments are starting to outperform their targets.

“On the equities side, you’re seeing investments that are above what investment performance targets are,” Sanzillo said. “On the listed equity market, there’s early evidence that the companies themselves that are involved in renewables are showing profits that are comparable and usually better than power generation utilities.”

According to the Preqin report, most allocators favor an investment mix of renewable and nonrenewable energy sources. As a result, fundraising for traditional nonrenewable resources fell 41 percent last year to $22.3 billion while interest in renewable energy has picked up.

The majority of interest in renewable energy investing comes from Europe, according to Preqin. Still, the Paris Agreement may lead emerging markets like China and India to increase their renewable energy investments in the coming years.

“More investors will be coming into the renewable space,” Carr said. “But I don’t see conventional energy going anywhere right now.”