Published on February 26, 2014
Institutional investor survey results Pension and insurance fund attitudes toward investment in renewable energy infrastructure November 2013
Key findings ► 61% of pension and insurance funds surveyed have no investment in renewable energy infrastructure. ► Nearly one-third of respondents expect their allocation to renewable energy to increase in the next three years, and 15% expect it to increase by over 10%*. ► Greater certainty of government support and greater in-house expertise in renewable energy are two of the most important factors in encouraging higher allocations to this asset class in the future. ► Insurance funds and pension funds differ in their attitudes toward renewable energy infrastructure, in their preferred vehicle of investment and in their views on investment going forward. Insurance funds appear to be the most active investors. * This excludes 40% of respondents for whom the question was “not applicable”. Confidential — All Rights Reserved Institutional investor survey 2013 | 2
Profile of survey respondents ► The survey was carried out by Institutional Investor LLC on behalf of EY. ► 75 responses from European and North American pension (44) and insurance (31) funds were received. ► 41% of European respondents had assets under management of over $50b, compared to 13% of North American respondents. ► Over a third of respondents had assets under management of $100b or more. Survey respondents by total assets under management and type of institution 17% $50b to $99.99b 13% Portfolio manager 4% 12% Senior analyst/Analyst 20% 39% Chief executive officer/Managing director $100b or more 12% 5% 3% $1b to $9.99b 13% Less than $1b 6% Pension funds Insurance funds 10% 1% Sample size (n = 75) Head of research 7% Pension manager/Head of pensions 5% Alternative asset or infrastructure manager 5% 5% 5% Sample size (n = 75) Survey respondents by type of institution and geography Sample size (n = 75) 9% Other 5% 3% $10b to $19.99b Chief investment officer Investment analyst/Manager/Officer $20b to $49.99b Pension Funds 59% Confidential — All Rights Reserved Survey respondents by job title Survey respondents by geography and size Insurance Funds 41% Europe 51% North America 49% Sample size (n = 75) Institutional investor survey 2013 | 3
Investment in renewable energy infrastructure 31% of respondents have invested in renewable infrastructure Insurance and pension funds Insurance funds Percentage of assets invested in renewable energy infrastructure Percentage of assets invested in renewable energy infrastructure 4% 5% 2% to 4.9% 6% 0.1% to 1.9% 19% No investment 6% 2% to 4.9% 8% 0.1% to 1.9% No response/unsure 5% 61% 8% Sample size (n = 75) ► In total, just under a third of respondents have investments in renewable energy infrastructure. ► 41% of insurance funds surveyed have invested in renewable energy infrastructure compared to 22% of pension funds. 29% No investment No response/unsure 55% 3% Sample size (n = 31) Pension funds Percentage of assets invested in renewable energy infrastructure 5% 2% to 4.9% 0.1% to 1.9% 2% 9% 11% No investment No response/unsure 66% 11% Sample size (n = 44) Confidential — All Rights Reserved Institutional investor survey 2013 | 4
Alignment with fund objectives Renewable energy investments align more closely to insurance fund objectives than those of pension funds Insurance funds Renewable alignment with fund objectives My fund's need to diversify into alternative asset classes 61% My fund's ethical objectives 42% My fund's investment horizon and liquidity requirements 26% 42% My fund's risk-return requirements My fund's regulatory or legal requirements 42% Neutral 10% 23% 35% 6% 19% 55% Good match 6% 6% 29% 39% 16% 6% 6% 19% Poor match 10% Don't know Sample size (n = 31) Pension funds Renewable alignment with fund objectives My fund's need to diversify into alternative asset classes My fund's ethical objectives My fund's investment horizon and liquidity requirements 20% My fund's regulatory or legal requirements 20% Good match 18% 11% 55% Poor match 11% 9% 52% Neutral 11% 23% 32% 34% My fund's risk-return requirements 23% 39% 27% 14% 16% 36% 34% 14% Don't know ► 61% of insurance fund respondents stated that renewable energy infrastructure aligned well with their need to diversify into alternative asset classes, compared to 34% of pension funds. Sample size (n = 44) ► 42% of insurance funds surveyed found renewable energy assets provide a good match with their ethical objectives, versus only 27% of pension funds. Confidential — All Rights Reserved Institutional investor survey 2013 | 5
Technology preferences More than half of insurers surveyed have already invested or are considering investments in on-shore wind; on-shore wind and hydro-electric are the most popular technologies for pension funds Insurance funds Investment by type of renewable energy infrastructure On-shore wind turbine power projects 28% Solar photovoltaic power projects 14% 24% Hydro-electric power projects 7% 18% Geothermal power projects 4% 7% 48% 10% 59% 21% 57% 18% Off-shore wind turbine power projects 4% Biomass power projects 4% 75% 7% 7% Any other type 10% 29% 61% 89% 3% 3% 3% Have invested 31% Evaluating particular deal(s) Considering investment No activity Sample size (n = 28) Pension funds Investment by type of renewable energy infrastructure On-shore wind turbine power projects 18% Solar photovoltaic power projects 14% Hydro-electric power projects 9% 64% 16% 70% 14% 9% 2% 75% 7% 11% Biomass power projects 64% 9% 9% Off-shore wind turbine power projects Have invested 2% 16% 20% Geothermal power projects Any other type 2% 11% 2% 75% 11% 2% 68% 36% Evaluating particular deal(s) Considering investment No activity Sample size (n = 44) Confidential — All Rights Reserved Institutional investor survey 2013 | 6
Geographic preferences The US is the top destination for renewable energy infrastructure investments ► More than one in four respondents have already made or are considering renewable energy infrastructure investments in the US. ► The UK and Ireland is the second most popular destination for investment among respondents. Renewable energy infrastructure investments by location USA 26% UK and Ireland 19% 17% Elsewhere in Continental Europe Germany 13% France 9% South Africa 9% Canada 7% South America 7% Spain 7% Italy 7% Elsewhere in Asia 6% Elsewhere in Africa 6% Oceania 4% China 3% Middle East 3% Not applicable 52% Sample size (n = 69) Confidential — All Rights Reserved Institutional investor survey 2013 | 7
Forms of investment Insurance companies invest mainly in project debt, whereas pension funds prefer tradable corporate equities Insurance and pension funds Forms of investment Tradable corporate equity (shares traded on a public exchange) 12% 16% Project debt 17% 7% Project equity Tradable corporate debt (bonds traded on a public exchange) Insurance funds 10% 12% Other Pension funds 9% 14% 1% Not applicable 12% 35% Sample size (n = 69) Forms of investment 27% 29% Tradable corporate equity (shares traded on a public exchange) 12% Project debt 43% Project equity 21% 20% Tradable corporate debt (bonds traded on a public exchange) Other Not applicable Insurance fund sample size (n = 28) Confidential — All Rights Reserved 0% 24% Pension funds Insurance funds 25% 4% 29% 59% Pension fund sample size (n = 41) Institutional investor survey 2013 | 8
Performance of investments and future allocations ► 38% of respondents said their renewable energy investments had met or exceeded their expectations1,2 For many, these are still relatively recent investments, and their performance has not yet been evaluated. ► Nearly one in three respondents expect their future renewable allocation to increase in the next three years, and 15% expect it to increase by over 10% 1. ► The vast majority (76%) of those who expect their allocations to increase are insurance funds. Performance of renewable infrastructure investments Our renewable energy investments have exceeded our expectations Outlook for future allocations to renewable infrastructure Increase by 10%+ 9% Increase by 5% to 10% Our renewable energy investments have met our expectations 15% 8% Increase by up to 5% 29% 10% No change 68% Decrease by up to 5% 11% It's too soon to tell Sample size (n = 35) 51% 0% Decrease by 5% to 10% Our renewable energy investments have fallen short of our expectations 0% Decrease by 10%+ 0% Sample size (n = 40) (1) Excludes 31 respondents who answered “don’t know/not applicable” (2) With 51% stating it was “too soon to tell” Confidential — All Rights Reserved Institutional investor survey 2013 | 9
Drivers of future investment Greater certainty of government policy and support, in-house expertise in renewable energy and transparency of potential investments will encourage investments Insurance and pension funds ► Respondents specified “Other” drivers to be: ► “Appropriate risk/returns and more client requests” Drivers for renewable energy infrastructure investments 29% Greater in-house expertise in renewable energy infrastructure investing 24% Greater certainty of government support and policy Greater transparency of potential investments 26% Increasing interest in socially and environmentally responsible investment from pension plan holders or other funders 15% Development of suitable pooled investment vehicles Government policy that supports institutional investors’ unique requirements, e.g., current use of tax credits in the US may not be of value to pension funds Insurance fund sample size (n = 27) Confidential — All Rights Reserved 34% 27% 24% 17% Other Pension funds 30% 19% 11% ► “Economics” ► “Economic viability” 22% 22% 5% 44% 22% 17% Greater access to attractively structured renewable energy assets Partnership opportunities with other investors ► “Double the size of portfolio” 22% Insurance funds Pension fund sample size (n = 41) ► “Less government support. Projects must be viable without subsidies” ► From the comments respondents made quoted above, it seems that although greater certainty of government support is a key driver of investment, some funds are deterred from investing precisely because renewable energy infrastructure requires subsidy. ► For insurance funds, which tend to be larger in terms of assets under management than pension funds, having more in-house expertise in this area is crucial to increasing investment. Many pension funds simply do not have the resources needed to invest in teams to evaluate projects. ► For pension funds, greater transparency of investments — the ability to look-through to underlying projects and compare to historical performance data — is critical. Institutional investor survey 2013 | 10
Recent EY cleantech thought leadership Renewable energy country attractiveness index (RECAI) Do you need a chief resource and energy officer? Our quarterly RECAI report ranks national energy markets on their attractiveness for . renewable asset investments. There is a compelling case for elevating corporate resource management to the highest levels of executive management through a chief resource and energy officer (CREO) position. This white paper explores the value of the CREO role, its key responsibilities and essential qualifications, and potential models for integrating such a role into your organization. US water sector on the verge of transformation From boiler room to board room: optimizing the corporate energy mix Designed as a resource for corporate energy managers, this report discusses strategies and considerations for addressing energy-related risks through the integration of renewables into a more diversified energy mix. . Global renewable energy country attractiveness and resource map These maps provide a global view of the renewable energy landscape by combining our overall and technologyspecific RECAI rankings with data on installed renewable generation capacity, capacity growth rate, new project pipeline and percentage of electricity generated from renewable sources. Confidential — All Rights Reserved Visit ey.com/cleantech to access these publications and other EY perspectives on cleantech. This report shares EY’s point of view on the multiple challenges that are converging to compel change in the US water sector, including an action agenda of ten proactive steps that water industry stakeholders should consider to help establish the long-term sustainability and growth of the sector. Cleantech matters: expanding the electric vehicle experience Summarized in this report are the insights and recommendations arising from our annual Cleantech Ignition Sessions, which convene industry players from around the world to discuss trends in electrification of vehicles. Institutional investor survey 2013 | 11
How EY’s Global Cleantech Center can help your business From start-ups to large corporations and national governments, organizations worldwide are embracing cleantech as a means of growth, efficiency, sustainability and competitive advantage. As cleantech enables a variety of sectors, old and new, to transform and participate in a more resource-efficient and low-carbon economy, we see innovation in technology, business models, financing mechanisms, cross-sector partnerships and corporate adoption. EY’s Global Cleantech Center offers you a worldwide team of professionals in assurance, tax, transaction and advisory services who understand the business dynamics of cleantech. We have the experience to help you make the most of opportunities in this marketplace, and address any challenges. Whichever sector or market you’re in, we can provide the insights you need to realize the benefits of cleantech. Contacts Gil Forer Global Cleantech Leader +1 212 773 0335 email@example.com Ben Warren Global Cleantech Transactions Leader +44 20 7951 6024 firstname.lastname@example.org John de Yonge Director, Global Cleantech Account Enablement +1 201 872 1632 email@example.com Scott Anderson Global Marketing Director firstname.lastname@example.org +1 201 872 1292 Scott Sarazen Global Markets Leader +1 617 585 3524 email@example.com Lily Donge Global Knowledge Leader +1 202 327 6796 firstname.lastname@example.org Heather Sibley Global Cleantech Assurance Leader +1 415 894 8032 email@example.com Alex Desbarres Global Strategic Analyst +44 20 7951 7078 firstname.lastname@example.org Paul Naumoff Global Cleantech and CCaSS Tax Leader +1 614 232 7142 email@example.com Nicola Marshall Global Cleantech Transaction Advisory Services Resident Manager +1 212 773 5156 firstname.lastname@example.org Confidential — All Rights Reserved Institutional investor survey 2013 | 12
EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. © 2013 EYGM Limited. All Rights Reserved. EYG no. FW0033 EYG/OC/FEA no. ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com Confidential — All Rights Reserved Institutional investor survey 2013 | 13
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