The article below is from our BRIEFINGS newsletter of 03 December 2019
The sharp fall in the cost of installing and generating renewable power is driving the shift to low-carbon technologies. We sat down with Taylor Jordan – who co-founded impact investment advisory firm Imprint Capital (which Goldman Sachs bought in 2015)– to discuss clean energy investment opportunities.
Impact investing is clearly on a growth trajectory. What is driving this in your view?
Taylor Jordan: There are two main drivers. First, we now have a broad set of investors who want to leverage their assets to create tangible impact. That has expanded from foundations, which were among the earlier adopters, to family offices and now institutional investors. We’ll continue to see growth in impact strategies as wealth transfers to younger generations that naturally embed their values into both their purchase and investment decisions. To give you a sense of scale, more than $11 trillion is expected to be invested in new power generation capacity globally by 2050, of which nearly three-quarters is expected to go to new wind or solar farms. This translates to an average of over $250 billion of capital invested in renewable energy assets each year through 2050, according to Bloomberg New Energy Finance. Second, impact themes are benefitting from a broad set of macro tailwinds. Take clean energy: early investors poured billions into the sector which resulted in a significant drop in the cost of installing and generating power — positioning renewables to become the dominant form of new power installation going forward.
Now that the costs of installing clean energy are nearly comparable with conventional sources, why haven’t we seen broader residential adoption of, say, rooftop solar panels?
Taylor Jordan: Utility-scale projects were responsible for roughly 60% of solar installation in 2018, while non-residential and residential projects made up the remaining 20% and 23%, respectively, of capacity, according to the Solar Energy Industries Association. But the adoption of residential solar has been highly unequal and skewed toward higher-income homeowners. That’s because 77% of US households are prevented from installing rooftop solar panels due to low credit scores, roof shading or because they don’t own their own home, according to greentechmedia.com.
But community solar projects are emerging as a way to democratize access to clean energy. Essentially, community solar projects are local solar facilities that are shared by multiple community subscribers – including both homeowners and renters – who receive credit on their electricity bills for their share of the power produced. While these projects are gaining rapid adoption across the US, the development has lagged demand due to a lack of financing options. Lenders and investors have been hesitant to finance due to the relatively new nature of these projects, while their relatively small size makes them less attractive to large institutional investors. However, we believe community solar is posed for strong growth due to the size of the addressable market.
What are some of the other environmental opportunities that you’re evaluating?
Taylor Jordan: While equity returns on operating large-scale utility projects have fallen to about 5% to 6%, we see value in other parts of the market. For example, there are pockets of opportunity in commercial and industrial solar, battery storage and grid services. In sustainable transit, the continued evolution of connected vehicles, electric vehicles and eventually autonomous vehicles looks promising, and we’re also looking at opportunities beyond cars, such as buses and motorcycles. In food and agriculture, there are opportunities in agriculture technologies that improve efficiency and yield, while taking advantage of changing consumer preferences in areas such as alternative proteins. We’re also seeing interesting businesses in waste and materials, such as bioplastics.