Google is investing in clean energy so it's "more accessible for our company and for everyone." Google has committed over $1bn to renewable energy projects.

By Jason Deign

A report published by Ernst & Young last November found that while 61% of pension and insurance funds, for example, had no renewable energy investments, almost a third of respondents expected their allocation to the sector to increase in the next three years.

In addition, 15% of those looking to invest were expecting to do so heavily, with allocations set to increase by more than 10%.

Institutional and corporate investors such as Allianz Capital Partners and Google are increasingly looking at PV to improve the diversity of their renewable energy portfolios.

The move comes amid a generally growing appetite for renewable energy investment in the institutional and corporate investment community, which includes large corporations and investment or pension fund managers.

And while onshore wind and hydro remain the most attractive technology options for investors, accounting for 43% and 38%, respectively, of current or planned investments, solar PV is rising in importance, at 32%.

Critically, many major investors with existing wind or hydro assets are now looking to incorporate PV into their portfolios as a way of hedging against the risks associated with a particular technology.

Solar calms wind volatility

Allianz Capital Partners, for example, has been investing in wind power since 2005 and now has 43 wind farms in its portfolio, but since 2009 has added seven solar parks to bring its total generation capacity to more than 1GW across Europe.

Speaking at this year’s European Wind Energy Association conference in Barcelona, Spain, Dave Jones, head of renewable energy at Allianz Capital Partners, said the addition of PV plants helped counter the volatility of wind energy output.

“Wind resource volatility is an inherent challenge,” he said.

On a year-on-year basis, output from wind assets can fluctuate by as much as 25%, Allianz has found. This is a problem for institutional investors, which seek regular, stable income streams.

Combining output from farms across different countries helps to reduce this variability, but PV can provide even greater benefits because solar irradiation only has an annual deviation of between 3% and 5%.

In addition, Jones pointed out, wind and solar resource are diametrically opposed during the calendar year so the combination of both asset classes helps to further stabilise intra-year production and profits.

Higher incentives

Last but not least, the fact that PV attracts higher incentives than wind in most markets means a diversified portfolio can generate more revenue, although Jones sounded a note of caution over retroactive changes, such as those seen in Spain.

“The biggest challenge we face is the economic cycle, where the affordability of energy is much higher up the political agenda,” he said. “While we’re dependent on subsidies, we are at risk.”

Google, another important institutional investor, has similarly looked to strike a balance between wind and PV investments.

Its 2GW portfolio includes USD$100m invested this April in a fund with SunPower Corporation, to finance residential installations, on top of investments in projects across California, Arizona, South Africa and Germany.

According to Allianz, institutional investors like renewable energy investments because they have a long asset lifetime, with relatively predictable cash yields and no correlation to capital markets. And PV is now increasingly seen as a mature technology, like hydro and onshore wind.

Being viewed as an institutional investment target could help the PV industry tap into a major source of funds.

Long-term investors

According to a Climate Policy Initiative report called ‘The Challenge of Institutional Investment in Renewable Energy’, published last year, pension funds, insurance companies and other long-term investors control around $71 trillion in assets.

In the US, says Lux Research analyst Fatima Toor: “Large corporations are investing in renewable or ‘clean’ energy generation because of simple economic benefits such as the federal government’s Investment Tax Credit and state-level renewable energy certificates.”

There are also branding benefits for companies, such as Google and Intel, which want to be seen as acting in a socially responsible manner. “Consumer views of a ‘sustainable’ company does positively impact business for large corporations,” Toor says.

“Corporations in general are partnering with utilities or green energy consulting agencies to accelerate their investment in green energy technologies.”

Wind offsets energy costs

Sweden’s international furnishing company Ikea has plans to build a wind turbine farm on property owned by the company in Illinois. While renewables are good for branding and reputation, entering the wine power sector for the company is mostly financially incentivised.

In 2013, the IKEA Group produced 1,425 GWh of energy from renewable sources, including wind and solar, equivalent to 37% of the company’s total energy needs. As part of its People & Planet Positive sustainability strategy, the company has allocated $2bn to invest in wind and solar until 2015 to get closer to its goal of producing 100% as much renewable energy as the total energy it consumes by 2020.

While it has been reported that the distance of the Illinois wind turbine farm from Ikea's business locations prohibits the use of the turbine energy by Ikea, it will rely on other alternative energy means, such as solar panels, to power its facilities. Therefore the strategy behind Ikea's wind energy investment is to harness the energy generated by the wind farm, and then sell it in the open market to offset its own energy costs.

The wind farm investment will mark the first such deal for the company in the US with the purchase of Hoopeston Wind in Hoopeston, Illinois. The 98 megawatt wind farm is the largest single IKEA Group renewable energy investment globally to date and will make a significant contribution to the company’s goal to generate as much renewable energy as the total energy it consumes by 2020. The project is currently being constructed by Apex Clean Energy and is expected to be fully operational by the first half of 2015.

"The US has amazing wind and sun resources that will never run out. We are delighted to make this investment – it is great for jobs, great for energy security, and great for our business. Importantly, it’s great for the future of our climate," says Steve Howard, Chief Sustainability Officer, IKEA Group.

The Hoopeston Wind project will install 49 Vestas V100-2.0 MW wind turbines near Hoopeston in Vermilion County, Illinois, approximately 110 miles south of Chicago. The project will be fully owned by the IKEA Group and managed by US-based wind and solar developer Apex Clean Energy.

Wind and solar as one: the perfect combo?

Even in emerging markets such as India, says Jasmeet Khurana, head of market intelligence at Bridge to India: “Most prominent developers have a portfolio of power projects which may or may not be limited to solar, renewables or conventional power sources.”

Madhavan Nampoothiri, founder and director of RESolve Energy Consultants, says some investors might want to consider going a step further and integrating wind and solar at a single location. “The main benefits relate to a common infrastructure,” he says.

“Solar is available during daytime and wind is strongest during night. This helps in effective use of evacuation. When land and evacuation become constraints, squeezing in both solar and wind helps in efficient use of the available land.”