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.
Reasons for this massive shift include:
Declining costs of renewable energy: The cost of renewable energy technologies, such as solar and wind, has been decreased dramatically over the last two decades. This cost reduction makes renewable energy increasingly competitive with fossil fuels.
Government policies and targets: Many countries have set renewable energy targets and implemented supportive policies to promote the adoption of clean energy. These policies include renewable energy standards, feed-in tariffs, tax incentives (Inflation Reduction Act), and carbon pricing mechanisms. Governments worldwide are recognizing the importance of renewable energy in their energy mix and are taking steps to facilitate its growth.
Advancements in energy storage: Energy storage technologies, such as batteries, are becoming more efficient and affordable. Energy storage solutions help address the intermittent nature of renewable energy sources, enabling better integration into the grid and improving overall reliability and flexibility.
Technological advancements: Ongoing research and development efforts are driving technological advancements in renewable energy. Innovations in areas such as solar panels, wind turbines, tidal and wave energy, and geothermal systems are expected to improve efficiency and expand the potential of renewable energy generation.
How do you invest in Renewable Infrastructure?
There are multiple ways to invest in the renewable infrastructure space with some opportunities providing more direct exposure and others providing secondary exposure to the space.
Publicly traded companies: Research and invest in companies that are involved in renewable energy generation, equipment manufacturing, or infrastructure development. While there are some direct pure play renewable infrastructure companies, the opportunities may be limited in public markets and come with significantly more volatility.
Green bonds: Consider investing in green bonds issued by renewable energy companies, utilities, or governments to fund sustainable projects. Green bonds take more research to understand that the money you are investing is going specifically to fund the investment in renewable infrastructure as these bonds have broad and sometimes misleading mandates.
Private Renewable Infrastructure Funds: For accredited investors and qualified purchasers, there is the opportunity to invest directly in renewable infrastructure funds or projects that give you direct exposure to opportunities in the space. This option is usually the best in taking advantage of the significant growth happening within the space while also providing limited volatility compared to public markets. Citizen Mint will provide direct access to these opportunities over time. You can review current investable opportunities HERE.
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