Renewable infrastructure is an asset class that many investors are beginning to incorporate in their portfolios due to its compelling risk and return characteristics. The asset class provides defensive characteristics through multiple market cycles and can provide consistent returns over extended periods of time.
RENEWABLE INFRASTRUCTURE • DEFENSIVE • ASSET ALLOCATION
What are infrastructure investments?
Infrastructure is a large asset class with a variety of investments that have the following characteristics:
Benefits of Renewable Infrastructure Investments
Portfolio diversification: In general, renewable infrastructure assets have a low correlation to stocks and bonds. Further, this asset class can reduce volatility in investors’ portfolios during economic turmoil as a result of stable earnings streams throughout economic cycles.
Income Potential: Given the highly predictable cash flows of renewable infrastructure assets, these investments usually provide strong income potential.
Growth: The global infrastructure market is expected to experience one of the greatest capital investment cycles ever given the transition from fossil fuels to renewable energy sources to address climate change. Additionally, countries are seeking energy security as a result of the war in Ukraine and dependence on foreign powers for energy needs.
Inflation Reduction Act
The inflation reduction act’s $370 billion commitment to clean energy will provide significant benefits to the renewable energy space and could significantly boost returns. Some key items encompassed in the act include:
Risks to Renewable Infrastructure
Political and Regulatory: Regulations and changes to the tax code can negatively affect the cash flows and valuations of these assets. Additionally, while rare, these assets have been nationalized, or taken over by governments.
Technical & Operational Capabilities: Owners and operators must be highly skilled given the complexity of running these assets.
Anticipated Shift to Renewable Energy 2020 – 2050
The following chart shows the dramatic projected increase in renewable energy versus other sources of electricity generation. As you can see, renewables are expected to roughly triple between 2020 and 2030.
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