Diomidis Dorkofikis, Infrastructure Partner in Foresight's Rome Office provides an overview of the market trends that have emerged over recent months as national efforts have been concentrated on COVID-19 and infrastructure projects have been delayed, and what these mean for investors.
If Italy is going to meet its climate action targets there is a need for substantial funding into renewable energy; a steady injection of €180 billion over the next 10 years. This presents a unique investment landscape for institutional investor looking to develop a diversified and sustainable portfolio and comes at a crucial point in time for Italy’s commitment to delivering renewable energy targets.
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I am Diomidis Dorkofikis, I'm a partner at Foresight Group Infrastructure Team, I'm based in Rome and I have the responsibility of overseeing investments across a variety of sectors, for our funds in Italy, as well as other countries in Southern Europe.
There is a substantial funding need for what concerns the renewable energy targets of Italy, as part of the national energy climate plan, that the government introduced them December, 2018. These objectives translate into a substantial increase of renewable energy within the electricity sector. With all these objectives would translate into a total investment of 180 billion euros, that will be required across the next 10 years.
We do believe there is a substantial funding gap that needs to be addressed. There is a variety of sectors that clearly will play a pivotal role in achieving these targets for renewable energy.
First, we'll see photosites being the main renewable energy source, that will see an increase of 160%. Next in the rank will be the wind sector with something like 90% increase until 2030. When it comes to the transport sector objectives, the biomethane sector will definitely play a pivotal role, with an increased share of production from what is the organic fraction of municipal solid waste.
On Italian institutional investors, there's a plethora of opportunities that the energy transition will create. First, the investors will benefit from the longterm data, the cash flows and diversification that renewable energy projects and green infrastructure offers to them.
In addition to that, there is a substantial de-correlation versus public markets, and a liquidity and complexity premium that these projects present. At the same time, it is evident that energy transition will be a main component of what it is the ESG criteria strategies that institutional investors need to put in place.
These are investment strategies that will require a holistic approach to sustainability evaluation criteria. At the same time, an ongoing monitoring also post investment will be required in order to make sure that there's an alignment of interests across divided stake holders.
When it comes to COVID-19, risk management, this has become now an essential part of our due diligence exercise. We are analyzing direct risks that the COVID-19 might create and impose for projects.These are mainly related to construction timelines and making sure that we'll have a significant buffer in terms of what is an extended and delayed construction.
Second, in relation to what concerns the main components, project components, supplies. It said the aspect is in relation to making sure within our portfolio, that we have a careful diversification across sectors without any correlation between them. In addition to that, by making sure that when it comes to demand risk, this is relatively minimal, the exposure.
So COVID-19 clearly has made us a much more attentive on the specific direct risks that a resurgence in the pandemic might create in our portfolio.