Firstly, we want to know a little about you. Can you please share with us your background and the key milestones of your career in renewables?
I have over 35 years of experience in investing both debt and equity into infrastructure throughout Europe and Africa for banks and funds, most notably in power, and in the last 10 years in renewables. Just over 10 years ago I was asked by the UK Government to set up the world’s first Green Investment Bank to invest in Offshore Wind, Waste to Energy and Energy Efficiency projects in the UK as Chair of the Investment Committee. Our mandate was to invest in projects that were currently not being served by traditional finance, but to be a “sustainable” institution, meaning we should mobilise finance into the green sectors on a sustainable basis. When we started, institutions were telling us that they would rather invest in onshore wind in Ecuador than offshore in the UK! However, within 5 years we had raised and invested a £1bn fund into UK offshore wind assets – which at the time was the largest renewable fund in the world.
What attracted you to RealPort and taking on the responsibility of working with us?
After a slow start, renewable infrastructure is now a recognised asset class for institutions (notably pension funds) that value long term, relatively low risk assets that provide a reliable annuity type income stream. In addition, there is also the benefit such projects provide to the planet and addressing the issue of climate change. However, generally the projects are very large scale and as such are only available to the largest institutional investors, who tend to “take and hold” for long term income. This means that smaller investors do not have direct access to these attractive assets. RealPort’s offering appealed to me because by utilizing the latest technology, it makes attractive direct investment opportunities available to smaller institutional investors, while also providing the potential for increased liquidity as the platform grows.
You are a member of RealPort’s Asset Selection Committee (ASC). Can you speak about the ASC mandate and how you will be working with the team at RealPort?
Clearly, the sourcing of assets that meet the risk return criteria of investors is fundamental for the platform. The particular product offering from RealPort has advantages for both the asset owner and investor in terms of its flexibility. However, it is critical that the underlying assets’ properties (technical, financial, regulatory) are properly understood through appropriate due diligence to ensure that they meet the Guidelines for Investment. It will be the ASC’s role to work with and ensure that the RealPort team, which includes utilising the long experience of Scope in rating such assets, undertakes such due diligence to an appropriate level, so that investors can have confidence that each individual asset meets the Guidelines for Investment.
What key trends in financing sustainable real assets do you see?
Every day there is a different announcement of new funds being invested into sustainable or green infrastructure and similarly an announcement of existing investors moving away from “old style” carbon intensive infrastructure. Similarly, many companies and governments are announcing strategies for “Carbon Zero” or significantly reducing their carbon footprint. The pressure from society, governments, and investors on all parties to focus more on ESG matters, particularly the E for Environment, is accelerating. This is resulting in a huge increase in funds looking to be invested in sustainable real assets, but also an increase in information requested from the owners or developers of these real assets by investors to ensure that their ESG standards are of the requisite standard.
Furthermore, the increasing capital investment is resulting in improvements in technologies through Economies of Scale, reducing the cost of output, moving green technologies closer to grid parity (or beyond) and thus reducing the need for subsidies for renewable energy. This is resulting in:
- The reduction or in some cases the elimination in subsidies from governments as renewable power prices fall
- An increase in corporate offtakers for zero carbon energy
- An increase in equity and debt available for renewable projects
- An increase in secondary market for both debt and equity in renewable projects
How do you see the market risks?
The trends noted above are changing market risks for renewable projects. Traditionally debt funding has required long term offtake contracts and/or subsidies from governments. This was required as the technologies were quite new and output prices were higher than grid prices, meaning that both debt and equity investors required support to achieve the appropriate risk or reward. However, with prices falling, investors are willing to take more market risk. Furthermore, as power markets develop and liquidity increases, products are developing in the power sector to offer protection against changes in market prices, including hedging (counting caps and floors) and contracts for differences. Clearly, the specific generational mix and regulation of each market will be fundamental in the analysis and mitigation of such risks.
How do you see RealPort navigating such risks?
Firstly, RealPort is not taking the risks itself as it is acting as an intermediary between the buyer and seller. However, a key part of RealPort’s offering is to provide all relevant information, which includes ensuring that assets meet published criteria, to provide comfort to buyers that their investments will be on a certain risk spectrum. So, RealPort will use the deep and broad experience of the members of the ASC and Scope to assess the operational and market risks of each asset, including the mitigants. In sourcing the assets, RealPort will always have the investors’ requirements in mind, including their various risk appetites to ensure that supply and demand can be met. Finally, RealPort will follow closely monitor each market as it develops to ensure it has a deep understanding of risks as markets and regulation change over time.
What do you see the ASC evolving to become in the future?
Well initially the ASC has to perform the function it was created to do in the innovative start up! As RealPort develops a track record it will continue to seek ways to improve and develop learning from its activities based on feedback from both buyers and sellers. As noted above, renewable markets don’t stand still, so the ASC will need to evolve also. You could foresee that as the platform increases volume the ASC could incorporate the use of AI to help in decision making. Also, it could be the case that the ASC may begin to develop a more bespoke service by assessing projects that may have a specific risk or reward profile to meet specific investors’ requirements. But as I say, that is all to come, we need to carry out our core function successfully first.
Read more about the Asset Selection Committee here.