KGAL investor survey for renewable energy investments – noticeable trend towards higher returns

Stability and security are more important than maximising returns for institutional investors in renewable energies in 2015. This is the result of a survey undertaken by the asset manager KGAL among institutional investors, such as insurance companies and pension funds, representing assets of around 700 billion Euros. Nevertheless, there is a trend towards riskier assets with higher expected returns. For 63% of those surveyed, stability of dividends is a key investment criterion, while for 51% it is the protection of assets. The majority (56%) relies on portfolio diversification.

The survey, which was conducted among institutional investors in summer 2015, covers both the status quo of renewable energy investments engaged in so far and preferences for future investments.

Photovoltaics and onshore wind are in the lead
The “traditional” investments still dominate in 2015: Those surveyed have mainly invested in photovoltaics (91%) and onshore wind energy (84%) until now. 70% preferred mixed portfolios. Only in some cases investments have been made in hydropower, bio energy, offshore wind energy, solar and geothermal energy.

Hydropower gaining popularity
Amongst the preferences for future investments, hydropower ranked second after wind energy: 84% of investors rated hydropower as very interesting or interesting. At 90%, onshore wind energy ranks first, while photovoltaics are close behind in third place at 83%. 42% of those surveyed also showed interest in investments in offshore wind energy, an asset for which a trend towards higher expected returns is anticipated.

Market knowledge is in demand
When selecting an asset manager, the following factors are crucial for investors: market knowledge and special expertise in the asset class (95%). The risk/return profile of the products (77%), the investment strategy (65%) and the track record (53%) are the next most important criteria.

Different returns expectations for renewable energies
The return expectations for renewables vary according to the type of energy generation. Returns of 5-7% are anticipated for onshore wind energy (58%) and photovoltaics (56%). For offshore wind energy, which is generally associated with higher risks, the majority therefore expects higher returns in the range of 7-10%. In the case of hydropower investments, however, a large part of the survey participants are satisfied with a moderate 3-5%.

“This is not surprising since hydropower, which is the oldest energy source in the history of mankind, is seen as a guarantor for stability, although investors still have little experience in this form of energy generation. At the same time, interest in investment options offering higher returns is increasing,” says Michael Ebner, Infrastructure Managing Director at KGAL Investment Management GmbH & Co. KG.

Decisive factors for investments
The key risks and influencing factors in the investment decision are mainly country risks, the stability of the regulatory framework and the development of demand and prices for electricity. “However, state subsidies for certain types of energy generation are considered less important. Anyone investing in renewable energies today is willing to accept significantly more market risks than before, but also expects higher returns,” says Mr Ebner.

The issue of security, however, dominates in the selection of the best regions for investments. Sunny regions like southern Europe, Africa and Asia/Pacific are not highly sought after yet. Western Europe, northern Europe and North America are currently the preferred regions. “These regions clearly score highly on important framework requirements such as infrastructure, controllable country risks and political stability. But we are still keeping an eye on the sunny regions such as Chile and Australia for future investments,” says Mr Ebner.

Against the background of the recent upheavals in some currency areas, 65% of participating investors prefer Euro investments. Nevertheless, 35% would also accept other currencies.