This article is by Emily Chasan of Bloomberg Briefs. It appeared first in Bloomberg Brief | Sustainable Finance.
Large pension funds seeking long-term steady returns are beginning to consider the US electric grid as a good investment, renewable energy developers say.
Pension funds “want to look at infrastructure directly as a way to deploy their capital,” said Ed Krapels, chief executive of Anbaric Transmission, an energy infrastructure developer that works on smart-grid and renewable projects. An agreement this week by 17 U.S. governors to incorporate wind and solar into the grid may give that a push.
The grid needs $40 to $50 billion of investment to be rewired to draw energy from wind farms and hydro-energy plants, rather than coal, gas or nuclear, he said. Those projects, which will be key to meeting U.S. emissions goals set by the Paris agreement, require large up front investments and pay back returns slowly over 30 to 40 years. “It matches the need that pension funds have for regular returns on investments,” he said.
Pension funds have looked at infrastructure increasingly over the past decade as a way to diversify their portfolios. The OECD says the asset class makes sense both because performance is not highly correlated with the stock and bond markets and because the long-term nature of infrastructure is a good match for pension funds’ long-term liabilities. Still, only about 1 percent of pension assets worldwide were estimated to be invested in infrastructure as of 2011, according to the OECD.
Large U.S. pension funds, such as the California Public Employees’ Retirement System, California State Teachers’ Retirement System and Maine Public Employees Retirement System, have all said in the past year that they want to target higher levels of infrastructure investment, particularly in renewables. Calpers last year created a new benchmark to measure sustainability of infrastructure investments. While MainePers does not specifically target renewables, “the criteria we use to evaluate sound investments increasingly results in the inclusion of renewable energy investments,” spokesman Sandy Matheson said in an e-mail. The fund has more than $100 million invested in renewables, he said.
The Paris agreement could also push investments toward renewables. “The agreement is going to serve as a long-term positive signal for renewable technologies,” said Doug Morrow, associate research director at Sustainalytics.
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