“Energy transition on steroids”: investors turn to renewable infrastructure amid Middle East conflict

For investors in renewable energy infrastructure, the conflict in the Middle East is a significant development. At Net Zero Investor’s Renewable Infrastructure Forum, convened yesterday in London, investors reflected on where things stand and where they might be headed.

Speaking against a backdrop of an on-going energy crisis, attendees at the event emphasised two forces driving investment decisions: resilience and selectivity.

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Energy resilience

The closure of the Strait of Hormuz and soaring oil prices have placed energy security high on investor agendas. A heightened focus on resilience has in turn, led to a rising interest in renewable energy – and the infrastructure that surrounds its delivery.

“Welcome to the energy transition on steroids”, affirmed Kingsmill Bond, energy strategist at energy think tank Ember. Bond, in his opening address, outlined the potential for renewable energy to build energy security, particularly in the context of energy supply shocks in oil and gas.

“This [the war in Iran] is to electrification in Asia what the Russian invasion of Ukraine was to energy transitions in Europe”, he said.

Anish Bhutani, managing director at advisory firm bfinance agreed. Resilience, he argued, is driving – not eroding – investor interest in renewables.

“The situation is emphasising the need for resilience. Overall, this could be a net positive for renewables", he told the audience.

A prospect of system resilience in renewable energy infrastructure, is seemingly drawing asset owner interest. “The case for renewables is even stronger now”, said Jamie Alvarez, a portfolio manager at Brunel Pension Partnership.

Alvarez, who stressed the long-term nature of asset owner investment decisions, also raised concerns about headwinds. Grid connectivity and curtailment being key amongst them.

Mark Watts, a partner at investment consultant LCP also highlighted the long-term horizons of renewable infrastructure investing. “The energy transition is a multi-decade endeavour", Watts said in a presentation.

“There's actually a large degree of insulation in energy transition investing. There are some very attractive returns that you have to hunt for across the world”, he added.

While the scaling up of renewables offered opportunities, it also posed real challenges, Sam Hollster, head of UK market strategy at LCP Delta warned, as grid capacity in the UK was already at its limits.

Akshay Kaul, director general infrastructure for UK energy market regulator OfGem wait the bost qas working on trying to attract capital into long-duration storage.

Dr William Blyth, director at Oxford Energy Associates warned that curtailment, the process of reducing energy generation during periods of high supply and low demand was now a real challenge.

Rhyadd Keaney-Watkins, managing director and head of ESG, Arjun Infrastructure Partners made the case that for investors in renewable infrastructure, opportunities may be abundant, but quality might not be. “Selectivity is key in this market” he stressed.

Describing the energy transition as a multi-trillion investment opportunity, he made the case that selecting specialist managers was now more important than ever.

His views were complemented by Asad Rashid senior investment research consultant at Hymans Robertson, who shared his experience of working with funds on selecting the right infrastructure managers.

Ryan Jude, programme director at the Green Finance Institute who set out the organisation's mission to mobilize capital for the energy transition.

Matteo Milone from APG Asset Management discussed the role of private equity in investing in the enabler layer of the energy transition. This could include investments in behind-the-meter solutions, smart metering, and battery technology to improve grid efficiency.

The afternoon was wrapped up with a fireside chat between Manuel Dusina, head of real assets, Standard Life and Mona Dohle, editor of Net Zero Investor, who reflected on the longer-term impact of the war in Iran on global energy markers.

Dusina made the case that the experience highlighted the importance of physical risks assessments of any real asset investment: "For real assets, physical risk is a core part of the underwriting"

In the UK, policy reforms could become a key accelerator for the transition, he predicted: "Now with the Mansion House accord, the government is putting private capital to work to delivering returns for pensioners while investing in megatrends such as energy transition."

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