Last updated: 11:00 / Wednesday, 19 May 2021
Pictet Asset Management

Listed Infrastructure's Crucial Role in the Clean Energy Transition

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  • Why clean energy stocks should be considered as part of an allocation to infrastructure

It is in one area in particular where listed infrastructure is emerging as a viable alternative to its private counterpart: clean energy. 

It's abundantly clear that renewables and sustainability-related sectors will be a magnet for infrastructure investment in the coming years. Both governments and an increasing number of large multinational corporations have committed to ambitious carbon reduction targets in the post-Covid era.

This will require trillions of dollars of capital to be re-directed to clean energy assets. The shift was already gathering momentum prior to the public health crisis. 

In the year before the pandemic, the renewables sector had accounted for the largest share of private-sector infrastructure investment. It drew in more than USD40 billion in new capital in 2019 alone – or over 40 per cent of the total amount invested in infrastructure that year. This is up from 20 per cent at the start of the decade (1).

 

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That looks modest compared with what could unfold. According to the International Renewable Energy Agency, cumulative investments in the energy system will need to increase 16 per cent to USD110 trillion between 2016 and 2050 from what’s currently planned to meet climate targets. 

If that happens, investment opportunities in the electrification and infrastructure segment – which includes power grids, EV charging networks and hydrogen or synthetic gas production facilities – could expand to as much as USD26 trillion by 2050. It is a similar picture in renewables.

Public infrastructure: gaining depth

And there are reasons to believe that the public market could attract a significant share of this capital.

The rise of blank-check financiers, popularly known as SPACs (special purpose acquisition companies), is a crucial development in this regard.

SPACs start off with no assets and go public to pool capital with the intention of merging or acquiring targets. They provide a quicker and more efficient alternative for firms to raise capital than through a traditional public listing.  

According to US law firm Vinson & Elkins, the number of announced “de-SPAC” transactions by clean energy companies – or the post-IPO process of the SPAC and the target business combining into a publicly traded operating company – set a record in 2021 while IPOs of energy transition SPACs have been equally robust.

Among the most popular industries targeted by SPACs are electric/alternative fuel vehicles, vehicle autonomy and grid-level battery storage (2).

The V&E report adds: “with projected capital requirements to meet carbon goals and deep investor appetite for these investments, activity to date may be but a prelude to even more robust activity over the next decade.”

The average clean-energy SPAC is estimated to have an anticipated enterprise value – a measure of a company’s potential takeover value – of USD1.8 billion (3).

Traditional IPOs in the clean energy industry are also strong in some regions. In Spain, partly in response to the EU's green recovery investment plan, at least four companies, including Repsol, are working on possible IPOs of renewable assets this year.

Green infrastructure for impact

As the world accelerates efforts to decarbonise and become more resource efficient, listed infrastructure firms specialising in clean energy and sustainable solutions are both a complement and alternative to private assets.

Listed infrastructure stocks, especially in clean energy and sustainable sectors, also allow investors to align their investment return objectives with their environmental and social goals.

Pictet Clean Energy strategy: investing in energy transition

  • Pictet AM's Clean Energy strategy is ideally placed as a complement for institutional investors looking for exposure in sustainable infrastructure. 
  • The strategy invests in companies supporting and benefiting from the energy transition. It aims to deliver long-term capital growth with a scope to outperform major global equity indices over a business cycle.
  • The strategy invests in broad and diversified clean energy segments, not only in renewable energy but also technologies, innovations and infrastructure supporting smart mobility, energy efficient buildings and efficient manufacturing.
  • Utilities and industrials make up at least 40 per cent of the portfolio.
  • About a third of the portfolio is directly exposed to infrastructure assets and investments, while the remaining has indirect exposure which should also benefit from growing inflows into green infrastructure.
  • The portfolio is nearly 100 per cent exposed to US President Joe Biden’s USD2 trillion stimulus.
  • Launched in 2007, Clean Energy strategy has a track record that is one of the longest in the industry. The experienced team that manage the Clean Energy strategy sit within our pioneering Thematic Equities team that manages around USD53 billion across a range of strategies.
  • Data as of 31/03/2021.

 

Opinion written by Xavier Chollet, Senior Investment Manager in the Thematic Equities Team co-managing the Clean Energy Strategy at Pictet Asset Management

 

Click here for more insights on clean and sustainable infrastructure

 

Notes: 

(1) Source: Global Infrastructure Hub. Investments combining debt (75%) and equity (25%) flows.

(2) Source: Vinsons and Elkins, 13.01.2021

(3) Shayle Kann, a San Francisco-based managing director at Energy Impact Partners, in an InterChange podcast entitled “The Cleantech SPAC Attack.”

 

 

 

 

 

 

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About Xavier Chollet

Xavier Chollet joined Pictet Asset Management in 2011 as a Senior Investment Manager in the Thematic Equities Team co-managing the Clean Energy Strategy.
Previously, he was a member of Pictet's Wealth Management division as an analyst covering technology (from 1998) and clean energy (from 2007). He also managed two internal portfolios on solar energy and energy efficiency.
Xavier holds a Master's in Finance from the Faculty of Business and Economics of the University of Lausanne.

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