Pension Funds Eye Wind Power for Big Returns

Brian Hicks

Written By Brian Hicks

Posted August 16, 2012

Pension funds are looking toward wind farms to earn big returns. Even as investors avoid wind power facilities in fear of their speculative nature, deeming them too ‘risky,’ pension funds are buying direct equity stakes in several wind plants.

The ongoing Eurozone debt crisis and the general economic turbulence seems to have made pension funds rethink their loyalty to government bonds.

On the one hand, renewable energy in Europe certainly relies on government support in order to reach a 20 percent share of the region’s total power supply by 2020. On the other hand, driven by newly risk-averse rules, banks and other investment entities are now shying away from renewable energy funding.

The situation affects wind power particularly, since wind plants call for comparatively higher startup costs, and quick returns are not part of the deal. That’s where pension funds, seeking longer-term returns over 20-30 years, are stepping in.

The Danish state-owned DONG Energy, for example, has several investors on its roster as it develops wind power projects offshore in Danish, British, and German waters. Among those investors? Danish pension providers PensionDanmark, PKA, Dutch pension group PGGM, and other industrial entities.

From Reuters:

“I think this will…develop into a standard investment case for many pension funds because the alternative of investing in government bonds provides such bad returns that you are obliged to identify alternative investments,” said Torben Moger, managing director of PensionDanmark, which has 618,000 members and 125 billion crowns ($21 billion) in assets under management.

Denmark is a global leader in wind power, and it is introducing new financing models for it. This could really have an impact in spurring other countries to produce similar infrastructural developments. As stated earlier, renewable energy and specifically wind power is perceived as risky, and hence investing entities often steer clear of it.

The OECD in 2011 stated that just 1 percent of pension funds all over the world were even involved in infrastructure projects. But, as interest rates on government bonds crater and wind power slowly gains a more sure footing, more and more financing arms are beginning to take a keener interest in the wind sector.

PGGM, for example, became a direct investor in addition to providing funding for various energy projects, and has staked out sizable investments in a UK and a Mexican wind power project. We should look forward to this trend catching on.

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