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The Investment Committee: Renewable energy

17 December 2020

Investing in renewable energy can combine financial returns with positive impact, says Michael Bonte-Friedheim, CEO of NextEnergy Capital and investment manager of NextEnergy Solar Fund

What actions we take during this decade will have a significant impact on the future of our planet. This might seem like a dramatic statement, but when we look at the facts, we can see how important it is to create a sustainable future:

  • October 2020 global temperatures were the third highest on record
  • In 2019, the UK had the warmest day it has ever experienced
  • Sea levels are rising at the fastest rate in 3,000 years
  • Average wildlife populations have dropped by 60% in just over 40 years
  • There is more carbon dioxide in our atmosphere than ever before
  • Carbon emissions from energy usage are rising at the fastest rate since 2011

This data is worrying, and it is crucial that as a society we come together to effect real change. It is incumbent on each of us to act to limit climate change and rehabilitate our environment.

Many of your clients will be concerned about their impact on the environment and the world they will leave to their children and subsequent generations. As they deploy their capital, they will be looking to achieve investment returns whilst supporting good causes and increasing the positive impact of their capital. This leads to conversations about responsible investment and good Environmental, Social and Governance (ESG) practices.

Renewable energy

The renewable energy sector, such as solar or wind power, is an investment area that offers an opportunity to combine financial returns with positive impact. In the UK, the drive to address climate change, along with energy supply pressures, has led to regulatory and market initiatives that encourage the development of renewable energy. As a result, the sector has experienced rapid growth. In the first half of 2020, renewable energy delivered almost half of the UK’s electricity generation.

Solar power has become a key renewable energy source yet currently only accounts for around 4% of the UK electricity generation. Solar energy is plentiful, and it is an incredible fact that more solar energy hits the earth in a single hour than is required by the entire human population for a year. Harvesting this free and abundant energy source has the potential to transform energy systems and mitigate climate change. The growth of the solar market and the continuous improvement of solar technologies create an opportunity for investors to participate in powering the economy in a cleaner and greener way.

Biodiversity

It is not only about reducing harmful emissions but also about improving the world’s biohabitat. One of the little-known benefits of well-managed solar assets is the opportunity for substantial improvement of the biodiversity on the sites and the surrounding areas they occupy.

Biodiversity decline and climate change are the biggest challenges of the 21st century. Biodiversity refers to the variety and number of living species, including plants, animals and fungi. Solar assets’ sites are well-placed to aid biodiversity as once they are established, they are fenced off and have very little disturbance over up to 40 years. This means that the asset manager can implement a landscaping and ecological management plan. These plans often involve a dramatic reduction in the use of fertilisers and pesticides, which can quickly improve the fauna and flora. They may also include on-site activities such as growing wildflower meadows, developing an ecosystem conducive to the increased presence of insects and working with local beekeepers to aid bee populations. Honeybees are the world’s most important pollinator of food and other important crops. They are currently in decline and solar sites can create an environment that supports bee populations and provides an added benefit to the local farmers.

Solar power can help us address these challenges and change the world we live in for the better, transform our planet and sustain our future and the future of the generations following in our footsteps.  And provide attractive investor returns while achieving this progress.

Professional Paraplanner