Renewable Energy

The case for renewable energy

Electricity demand is rising for the first time in decades in many developed economies. Electric vehicles, heat pumps, data centres and the electrification of industry all need more power, and they need it to be cleaner. At the same time, solar and wind have become among the cheapest ways to build new generating capacity, thanks to falling equipment costs and improving technology.

For an investor, a solar farm or wind turbine is an unusual kind of asset. It has no fuel bill. Once built, it produces power from sunshine or wind, and its operating costs are modest and predictable. Its revenue is the electricity it sells, often under a contract that fixes the price for ten to twenty years.

That makes renewables more like infrastructure than like a speculative investment: long-lived, contract-backed and tied to a basic need.

How a project makes money

A project has a simple structure. Capital pays for land rights, equipment, construction and grid connection. After it starts generating, it sells electricity and collects revenue. From that revenue it pays operations and maintenance, land rent, insurance, taxes and any debt, and the rest is available to distribute to investors.

Most revenue comes from selling electricity, but projects can also earn from capacity payments for being available, from grid services such as frequency response, and in some countries from renewable energy certificates or tariffs. Battery storage earns by buying power when it is cheap and selling it when it is dear, and by supplying grid services.

Power purchase agreements

A power purchase agreement, or PPA, is a long-term contract under which a buyer — a utility, a large company or a government body — agrees to purchase the electricity a project produces at a set price or formula. It is the backbone of the investment case because it reduces exposure to volatile wholesale power prices and makes income more predictable.

The quality of the buyer matters as much as the price. A contract with a strong, creditworthy utility is worth much more than one with a weak counterparty. We examine each agreement's price, duration, indexation, termination rights and the buyer's financial strength.

Construction versus operating assets

Projects pass through two phases, and they carry different risk. An operating plant has already been built and is producing power. Its risks are the weather, the performance of the equipment and the price it receives. Its income is more predictable, and the core holding is in operating assets.

A project under construction can offer a higher potential return, because the investor is paid for taking the risk that the build is delayed, over budget or fails to connect to the grid on time. These are limited in size and flagged clearly in the project brief.

What drives the output

Solar output depends on irradiation, temperature and the angle of the panels. Wind output depends on wind speed, which varies by season and from year to year. Developers forecast production with long records, but a poor year can come in below forecast, and equity investors take that variation.

Availability matters as well: how much of the time the plant is ready to generate. Inverters, turbines and transformers need maintenance, and a fault can take a unit offline for days or weeks. Strong operators, spare-parts agreements and warranties protect against this.

Regulation and policy

Renewable energy is heavily shaped by policy. Tariffs, tax credits, planning rules and grid-connection queues can all affect returns. In many countries support has been stable and bipartisan, but policies change, and a project's economics can be hurt by retroactive cuts or delays in permitting.

We prefer jurisdictions with a track record of honouring contracts, and we assess each project for its sensitivity to policy change.

How the portfolio is managed

Projects are spread across technologies, locations and buyers so that no single plant, weather system or counterparty dominates. Operating assets are run by specialist companies under service agreements, with performance monitored remotely. Output, availability and revenue are reported to investors at set intervals.

What it covers

Utility-scale solar

Large ground-mounted solar farms selling power to a utility or the grid. Predictable output, low operating cost, 25 to 30 year lives.

Commercial and rooftop solar

Systems on factories, warehouses and offices selling power to the building owner under a long contract. Smaller, with a creditworthy corporate customer.

Onshore wind

Wind farms on land with higher output per unit than solar and complementary generation patterns, since wind often blows when the sun does not.

Battery storage

Large batteries that store power and sell it when prices are high or the grid needs support. Newer technology with strong demand and more revenue variability.

Development-stage projects

Projects in permitting or construction. Higher potential return, higher risk of delay, cost overrun or failure.

Grid and enabling infrastructure

Connections and transmission assets that enable projects to deliver power. Less glamorous, but often regulated and stable.

What drives the outcome

Resource — sunshine hours and wind speeds, which vary from year to year.
The terms of the power purchase agreement, including price and duration.
Wholesale power prices for any output sold without a contract.
Policy and subsidy changes, including grid-connection rules and tariffs.
Plant availability, equipment performance and maintenance costs.

Who it is for

Investors seeking long-term, contract-backed income from infrastructure.
Those who want their capital to support the energy transition and also seek a financial return.
People who can lock capital away for years and accept that distributions will vary.
Not suitable for investors who need short-term access or guaranteed income.

How the process works in practice

Project selectionSites are assessed for resource — sun or wind — grid connection, permits, land rights and the strength of the offtake contract.
Construction fundingCapital funds the build, which carries more risk than an operating plant. Operating assets can be bought as well.
Selling the powerElectricity is sold to a utility or corporate buyer under a long-term agreement, or on the wholesale market, or both.
OperationsPlants are monitored remotely and maintained by specialist operators. Output and availability are reported.
DistributionsRevenue net of operating costs, debt service and fees is distributed to investors at set intervals.

Your journey as an investor

OnboardingFunding is allocated to operating or late-stage projects according to project availability.
QuarterlyDistribution statements showing output, revenue, costs and payment.
AnnuallyTechnical report on performance versus forecast and updated valuations.
End of termAssets are held, refinanced or sold, with proceeds distributed to investors.

Questions investors ask

Is the income fixed?

Contracts fix the sale price for a period, but output and costs vary, so distributions are not fixed.

Operating or under construction?

The core holding is operating assets. Any construction-stage exposure is flagged in the project brief.

How long is the commitment?

The holding period is stated for each project, and the underlying assets are intended to be held for many years.

What if there is a poor wind or sun year?

Output falls and so does revenue. Forecasts use long-term averages, so some years will be below and some above. Diversification across sites softens the effect.

What if the buyer defaults on the PPA?

Revenue could fall and the project would need to sell power on the market or find a new buyer. We assess buyer credit quality for this reason.

How long do the assets last?

Solar panels and wind turbines are typically designed for 25 to 30 years, with output declining slowly over time.

Is this an impact investment?

It supports clean generation, but investment returns are the objective, and we do not guarantee any particular environmental outcome.

Can I sell my share early?

Not as a right. Where exit is possible before the end of the term, it depends on another investor being found and may be at a discount.

Glossary

PPA: Power purchase agreement: a long-term contract to sell electricity at an agreed price.
Capacity factor: The share of the time a plant actually produces at full rated power, averaged over a year.
Curtailment: When a plant is told to reduce output because the grid cannot take it.
Merchant exposure: Selling power at market prices without a fixed-price contract.
Offtaker: The buyer of the electricity in a PPA.