The Organisation for Economic Cooperation and Development (OECD) has published a set of detailed case studies looking at institutional investors’ investment in green infrastructure.
Projects featured include insurance giant MetLife’s direct equity investment in the Webberville Solar project in Texas, TIAA–CREF’s involvement in Brazilian farmland and the Walney offshore wind farm that has been backed by PGGM of the Netherlands.
Despite the differences between the projects, the OECD says “hallmarks of good practice” can be identified from the case studies.
The paper states: “There appear to be some important opportunities for pension funds and insurance companies to derive the returns they need from green investments – if these deals are properly targeted and structured [OECD’s italics].”
MetLife announced in 2012 that it had teamed up with Longsol Holdings to buy the 30MW solar power plant in Texas from SunEdison to sell electricity under a 25-year contract to utility Austin Energy. The OECD said it was a “leading example” of direct investment by an institutional investor which “shows that the clear and stable long-term investment plans and the long-term power-purchase contracts served to reduce the political regulatory risks associated with solar PV generation and meet the demands of predictable cash flows”.
And $500bn US retirement services provider TIAA–CREF’s formation last year of a $2bn agricultural company (TIAA–CREF Global Agriculture) with fellow institutional investors is also analysed.The main lesson for investors, the case study shows, is the importance of local knowledge and governance, the OECD says. It also highlights the range of available investments utilising different capital structures and investment channels as well as their associated risks and risk-adjusted returns. The report adds: “Fundamental to this type of investment is the need to build the necessary capabilities to manage such investments.”
The 367.2 MW Walney project in the Irish Sea is the world’s largest offshore wind farm. PGGM’s interest is via its involvement in the OPW consortium with the Triodos-managed Ampere Equity Fund, which took a 24.8% stake in the project in December 2010. The project, the OECD says, “highlights the interaction between government policy regulations and incentives, and the deployment of innovative financial structuring by the project developer”.
The case studies are contained in 97-page report called Institutional investors and green infrastructure investments: Selected case studies, by Chris Kaminker, Osamu Kawanishi, Fiona Stewart, Ben Caldecott and Nicholas Howarth. The report itself forms part of the OECD’s broader work on long-termism.
As well as noting that more than 50% of installed wind turbines in Europe are reportedly owned by institutional investors, the report looks also at barriers to investment in green infrastructure and suggests a series of recommended policy actions. Among these are for governments to facilitate the development of appropriate green financing vehicles.