Renewables Trump Conventional Energy for First Time, Says Preqin
Funds likely to take more of a mixed approach in energy investments going forward.
According to Preqin’s June 2017 report, conventional energy has taken a back seat to renewable funding.
The report notes that 2017 is the first time that renewable energy-focused funding exceeded the capital raised for conventional energy sources. Pointing to the renewable energy’s transition into the corporate mainstream in tandem with the depression in oil prices, Preqin suggests this trend will continue. It is also the first time that there are more channels with a renewable energy focus seeking greater investor capital than conventional energy funds.
Since 2008, conventional energy funds have accounted for 46% of all energy capital raised. However, in recent years, fundraising has been on a steep decline. Conventional energy funding has fallen from a 2015 peak of $35 billion to six funds securing a year-to-date (YTD) total of just $2 billion.
During this time, renewable fundraising remained level in 2015 and 2016, and nine YTD funds have raised $5 billion total — beating out conventional energy funding for the first time.
There are currently 73 renewable-targeting funds aiming for a $35 billion total. Conventional energy only has 52 funds looking at a $29 billion goal.
Since 52% of conventional energy investors also fancy renewables, while 58% and 61% of renewable energy funds have oil and natural gas focus, respectively, Preqin feels that a shift between the strategies is unlikely, instead prompting more funds to take a mixed approach when it comes to energy investments.
“Global energy demand will continue to grow in the coming years, particularly as emerging economies enact large-scale projects to enhance living standards and modernize their infrastructure. However, within the energy industry there is a long-term adjustment evident towards renewable energy activity and away from conventional energy sources,” says Tom Carr, Preqin’s head of real assets products. “Public pressure and governmental policy to address climate change has placed constraints on the fossil fuel industry, while the US shale oil boom has depressed oil prices in the mid-term. At the same time, technological breakthroughs have reduced the cost-per-unit of renewable energy sources, making them more attractive to investors.”