Growth of renewable energy offers investing opportunities class, with similar risk/return characteristics, and “as an asset class it is still growing. We see tremendous opportunity for capital formation for people like us, and a growing group of investors,” Dooley said.
That ranges from smaller public pension funds to bigger risk-takers like the $248.2 billion New York City Retirement Systems, whose portfolio exposure to the energy transition is 25%, and Norges Bank Investment Management, whose renewable energy infrastructure strategy for 2025 calls for investing in renewable energy storage and transmission and exploring new markets and technologies. “This is now very much mainstream,” Dooley said.
Next-generation technology like utility-scale battery storage “is right on the cusp. Hydrogen, biogas (and) aviation fuel will all follow on that journey,” he said.
That is quite a different market from even two years ago.
“Many investors are finding now that they need to look at companies that take assets at an early stage. I think there is a gravitation towards opportunities to get that ground-floor return. It does take a bit more patience,” Dooley said.
One limiting factor is the permitting process for new energy infrastructure, but governments are starting to step up to the challenge, said Dooley, who is optimistic “on a lot of levels,” particularly the growing appetite in the corporate world. “This is a revolution we are seeing right before our eyes. That gives us a cause for confidence,” Dooley said.
According to the International Renewable Energy Agency, it will take triple the amount of global renewable power capacity by 2030 to even stay on track toward Paris Agreement carbon targets to address climate change.
It helps that costs of renewable power generation from solar and wind power have been falling dramatically. By 2022, they became cost-competitive with fossil fuels even without financial support, according to the agency.
Also helping are policy changes like the Inflation Reduction Act in the U.S. and the European Parliament’s September decision to raise the renewable energy target to 42.5% of energy use by 2030. G20 countries that account for 80% of global greenhouse gas emissions have also agreed to triple renewable energy capacity by 2030 globally.
A lot has changed in less than a decade, said Brendan Bell, a former Department of Energy official involved in attracting institutional capital to renewable energy projects. Now chief operating officer of Aligned Climate Capital, a decarbonization fund manager, he has seen renewable energy find more asset classes that appeal to investors. With 89% of all power generation last year coming from renewables, “it’s now a much more mature market than it was five to 10 years ago,” he said.
Large pension funds were already there and more endowments are now looking, particularly as there are more products and some track records, said Bell, who expects to see more fund investments with the goal of co-investment.
“The driver has primarily been wind and solar, but we’re starting to see that expand to electric transportation and energy efficiency, and then we’re seeing businesses built around these. This is all creating opportunities for traditional growth, equity and buyout, venture, etc. The broader set of decarbonization sectors are developing a market that is becoming more and more institutional over time,” Bell said.