Renewable Energy Generation

From an investment standpoint, power generation investing involves committing financial capital and expertise to building, maintaining, and/or rehabilitating large-scale, capital intensive assets that are critical to well-functioning modern economies.  Power generation assets tend to possess certain key characteristics including:

  • Economics that are underpinned by demand inelasticity and instantaneous electric energy supply that is discreet and well-understood;
  • Most often, long term regulated utility power offtake agreements;
  • Tangible long-term physical assets that depreciate slowly;
  • Predictable operations and maintenance costs;
  • Strong risk mitigation mechanisms related to cost, schedule, performance, and force majeure risks;
  • Revenues and cash flows that escalate with or are linked to inflation;
  • Recession resistant, non-cyclical, and uncorrelated with most other investment asset classes;
  • Support significant financial leverage, frequently under disciplined project finance structures; and
  • Resulting high-quality risk-adjusted returns with relatively low volatility and attractive operating period cash-on-cash yield.

Renewable Generation Infrastructure assets generally possess overall power generation characteristics, with the following additional features:

  • Renewable power assets are frequently more capital intensive per unit of output as compared to thermal plants (i.e. possessing very high operating leverage) because there are no fuel costs (or relatively minor in the case of, say, a waste-burner) and O&M costs are often lower given fewer consumables, personnel, and systems to operate and maintain; and
  • Wind and solar plants have significantly shorter construction periods with fewer completion risks as compared to thermal plants.

The two principal Renewable Generation Infrastructure sub-sectors in which Foresight’s Infrastructure team invests are solar and biomass

Our investment experience in biomass extends back over ten years, where the market has been driven to a large extent by European and national government regulations and incentives (such as feed in tariffs and landfill taxes), energy security, volatile commodity prices, cost reductions and environmental agendas of governments, corporations and individuals.  We invest in projects that are both environmentally and economically sustainable using dedicated funds and through syndication with strategic partners where our expertise and understanding of the relevant proven technologies and markets provide competitive advantage.

Since 2009 the price of solar technology has plummeted by around 90%, radically improving its economic viability globally.  Importantly, solar technology is fundamentally modular and so working at any scale, rendering debates about centralization redundant.  Solar plants can also be developed and built more quickly than fossil-fuel plants.  As a consequence of these dynamics solar power has exhibited a very rapid rise in its share of the generation mix globally.