Union Investment institutional head warns of renewable energy capacity squeeze
Alexander Schindler, responsible for the €100bn institutional client business at Union Investment, has expressed concern there may not be enough renewable energy projects to fulfil the demand coming for the asset class from Europe’s pensions and insurers.
Union has calculated globally since 2004 investments in renewable energy have risen in volume by 540%, including $211bn last year alone.
The extension of renewables against this backdrop has occurred beyond the developed world. For the first time last year investments in the developing world projects were larger than those made in the developed world – with China leading the way.
Such developments led Union Investment fund manager Thomas Deser to say recently: “The build-out of renewable energies is beginning in earnest beyond Germany.”
The German asset management giant has been busy in the sector for institutional clientele, by launching its first institutional renewables fund, which allocates at least 70% of its assets to onshore wind power and up to 30% to solar power.
The group has sought to make the sector more accessible to retail investors this year by launching the Garantiefonds UniGarant: Erneuerbare Energien (2018) product. It is based on an equity index of international renewable energy businesses active, for example in wind, solar and hydroelectric power production.
Schindler (pictured) said quality renewable energy projects could play an important role in providing long-term income to institutional investors, at a time their major income investments in core government debt had low, or sometimes negative, yields.
European trustees are also under pressure to allocate more to renewable energy, after a public groundswell of favourable opinion – including in Germany – following the explosion of the Fukushima nuclear plant in Japan, and more recent mishaps at French plants.
“Pensions and endowments have allocated a certain amount, and now they have to invest,” Schindler noted.
But he expressed some concern the sector overall may not be enough to absorb the general investment demand, particularly from larger allocators.
(This also mirrors findings from a seminal report on renewables and institutional investors compiled by consultants Mercer last year.)
Schindler said: “The main worry [for renewable energy projects] is, there are not enough projects, there are only a few of them”.
The squeeze on capacity due to investment volumes is exacerbated by a number of factors.
Schindler said, for example, German investors “tend to like only German domestic projects, they are not looking to go to Spain or Italy, because of their experiences there and the interest overall is more northern European.”
Another hurdle Schindler mentioned was projects in Germany being established by community groups that are not enthusiastic to open them up fully to outside investors.
“Many of the waste energy projects have been financed by citizens, and particularly farmers have invested into them, and while they could allow German investors to invest in them, too, they wish to keep it in their community.”
He also expressed some concern of how much investors could rely on government subsidies over the longer term, for investing in the sector.