Investors to double investments in renewable energy
Institutional investors are making change a reality as we move towards a carbon-neutral future. According to an international investor survey conducted by Lappeenranta University of Technology (LUT), listed energy companies are falling behind as institutional investors bring new capital to the sector and challenge traditional business operations.
Institutional investors, such as insurance companies, pension funds and banks, are increasing – in some cases even attempting to double – the amount of their investments in renewable energy sources in the coming years. This is a consequence of stricter requirements related to decreasing the carbon footprint of investments.
"The change currently under way is irreversible. Its power will be seen internationally in the form of increased investments in wind and solar energy production, and, in the future, also in energy storage and energy efficiency," estimates D.Sc. (Tech) Petteri Laaksonen, who carried out the survey.
According to Laaksonen, large investors have the power to create change. Insurance companies, pension insurance funds and banks have traditionally invested in listed companies, which have then, for their part, invested in energy solutions. Starting in the beginning of the 2000s, there has been a change in this marching order. Investors are either directing their investments towards funds to ensure that the money will be targeted to investments in renewable energy, or investing directly in projects.
The survey involved interviewing major international investors that have ever-growing needs to invest in green and sustainable investment objects. They are looking for investments with a low risk and reasonable return. The investors' problem is that it is difficult to find enough profitable projects, or there are uncertainties surrounding them.
Laaksonen sees several possibilities for increasing the rate of change. First, it is important to utilise the current driving force that exists among investors. In order to make sure investments are realised, investment objects and the investment environment should be made more low-risk in the long term through state-level measures. This means creating a stable and open investment environment for green and renewable projects.
"Energy investments have a long lifespan. For investors, it is necessary to create an outlook extending far enough into the future. This decreases uncertainty around investments, meaning that the cost of investments decreases and society reaps the benefits. This way we can move more quickly towards carbon-neutral society".
Laaksonen would also increase the roles of states and the EU in speeding up the development of technology and service companies in their early stages, as well as in funding industrial-scale technology pilots. This would make it easier for projects seeking new investments to become suitable investment objects for large investors. This would also increase the competitiveness of the EU on the international markets.
In addition, Laaksonen proposes an EU-level carbon tax. By collecting this tax, states could use the revenue to support investments in renewable energy.
Finally, it is also simply a question of being able to communicate the most recent research results and the maturity of technological development to investors.
"Here in Finland, research generates a great deal of information about future technologies and their applications. We should learn to identify investment-worthy objects and bring them to the attention of investors," Laaksonen says.
The survey was conducted as part of the Neo-Carbon Energy research project. The project is funded by the Finnish Funding Agency for Innovation Tekes and is being jointly carried out by LUT, the VTT Technical Research Centre of Finland, and the University of Turku's Finland Futures Research Centre (FFRC).
Petteri Laaksonen, +358 (0)40 5088 498, firstname.lastname@example.org