The Pensions Infrastructure Platform has closed the first round of financing for its solar photovoltaics fund, as schemes continue to weigh the benefits of less familiar alternative assets such as renewable energy.
Pension schemes have been pursuing infrastructure investment with increased vigour in recent years, but until now UK funds’ investment in solar energy has lagged behind countries such as Denmark and Holland.
However, earlier this year consultancy Mercer’s ‘2015 Themes and Opportunities’ paper said investors were exploring more niche alternative assets in response to the low-yield environment.
The Pensions Infrastructure Platform was developed by the National Association of Pension Funds to help schemes access long-term, inflation-linked investments.
The PiP’s solar PV fund, managed by asset manager Aviva Investors, has commitments of £131m from four UK schemes.
It will invest in small-scale solar PV in the UK and is expected to produce returns of 2-5 per cent above RPI, delivering income quarterly.
It’s not a simple asset class to be invested in, it’s very complex,
Maria Johannessen, PwC
Mike Weston, chief executive of PiP, said that as a UK-based investment offering no construction risk, long-term contractual income and inflation linkage, solar PV “ticked the boxes that PiP established”.
He said: “Pension schemes are keen to invest in these type of assets but the project has to be structured in the right way.”
The fund will target investments in commercial rooftop installations, Weston added, smaller than the large-scale solar farms but larger than residential panels.
The next step for the PiP, said Weston, is the “multi strategy infrastructure fund, which will have the ability to invest across the infrastructure spectrum”. This will include solar energy, private public partnerships and transport projects.
“There are a lot of things that fit or can be made to fit,” he said.
Renewable energy
Ian Simm, chief executive of responsible investment at Impax Asset Management, said schemes were taking a growing interest in renewable energy.
“There’s been an uptick in the amount of money invested in renewable energy by pension funds over the past 10 years,” he said, adding the interest mainly focused on established technology such as solar PV and onshore wind.
“[The] vast majority of costs are known up front, so variability of cash flows is low,” said Simm.
“The risks are really very low provided you are insulated to [energy] price movements,” he said, noting that changes in government subsidies for solar energy meant projects in the future would need to account for movements in energy pricing.
He said: “The revenue will be linked to the power price rather than a government-backed price.”
Schemes looking to invest in solar typically do so through specialised funds, Simm said.
Untapped asset
However Maria Johannessen, director at consultancy PwC, said excluding PiP’s activity, there had been “very little” investment in solar energy from UK pension schemes.
“A number of Dutch and Danish funds have bought in in different ways,” she said. “It’s very nascent in the UK, it rarely comes up.”
But she added: “It looks like it’s coming, which is a good thing. It’s clearly an asset class that has relevance.”
Johannessen said regulation was a major factor in deciding whether a solar investment was value for money or not.
“It’s not a simple asset class to be invested in, it’s very complex,” she said.
