The expansion of renewable energies is accelerating. According to the International Agency for Renewable Energy (Irena), a record 473 gigawatts of renewable energy capacity was added worldwide in 2023, 54 percent more than in 2022. The vast majority of this was due to the addition of solar systems.
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However, in order to achieve the goal of tripling electricity generation capacity from renewable energies agreed at last year's UN climate summit in Dubai, a further increase in annual net expansion is required. According to international agency Irena, the power of 11.2 terawatts (TW) resulting from this target requires a total average annual increase of 1,044 gigawatts between 2024 and 2030 (inclusive).
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This corresponds to an average annual growth rate of 16.4 percent of the total installed electricity generation capacity from renewable energies. Photovoltaics continue to play a key role: the agency sets a capacity target of 5.5 terawatts, which requires a net increase of 578 gigawatts in each of the years from 2024 to 2030.
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Around 700 billion euros required
The associated investment requirements are enormous. In order to achieve the global goal of tripling renewable capacity by 2030, Irena estimates the global capital requirement at $1.5 trillion per year.
Around half of this goes to expanding electricity generation through renewable energies, while another 281 billion euros are needed to expand transmission and distribution networks - in Germany alone.
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It doesn't work without private investors
The private sector will have to provide a significant portion of the required capital. In view of empty state coffers and high levels of debt, institutional investors such as insurance companies, pension funds, foundations, but also private investors are in demand to significantly help finance the conversion and expansion of the energy supply.
In fact, private investors' interest in investing in transforming the energy system has increased significantly. This applies in particular to investments in energy infrastructure, i.e. systems, networks and storage. Typically they run through the private markets, which include real estate, private equity, private debt, venture capital and infrastructure.
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Keen interest in energy infrastructure
This interest is evidenced by the latest survey by the German Federal Association of Alternative Investments (BAI) from October 2024, according to which 57 percent of respondents plan to increase their infrastructure share in their portfolio. This makes infrastructure the most sought-after asset class in the private markets sector.
The energy subsector is perceived as particularly interesting compared to other types of infrastructure, as a survey by CFIN - Research Center for Financial Services at Steinbeis University showed last November: 90 percent of those surveyed rated the sector as (very) attractive.
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Growing demand for investment opportunities
The positive assessment of infrastructure investments, particularly in the area of renewable energies, reflects the growing demand for sustainable investment opportunities. But there are other reasons for the increased interest among institutional investors.
In addition to the long-term nature, these include independence from short-term capital market fluctuations and diversification effects. In addition, infrastructure investments generally deliver stable and predictable cash flows and offer protection against inflation because the returns are linked to the general price level.
However, there is still a gap between investments made and those required. This is not least due to the regulatory framework, which, despite some efforts, has often proven to be unhelpful.
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Fund opened for new business
There are currently specific plans to expand the assets permitted for open real estate special funds. In the future, the funds will also be allowed to acquire undeveloped land through participation in infrastructure project companies that are intended and suitable for the construction of systems for the generation, transport or storage of electricity, gas or heat from renewable energies. A new regulation is also intended to regulate that the operation of both open-space systems and roof-top systems is a permissible activity of the capital management company for the real estate fund.
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The author: Robert Guzialowski has been Head of Business Development Real Assets at HANSAINVEST Hanseatische Investment-GmbH since August 2022, where he is particularly responsible for sales of private debt, private equity, renewable energy, infrastructure and real estate funds is. Previously, he was Head of Real Assets Germany at Hauck Aufhäuser Lamp Privatbank AG. In addition to sales and customer management at the AIF depository, he was responsible for supporting the capital management companies from the start of the business relationship to the onboarding and fund transactions. Robert Guzialowski is a lawyer and regularly speaks and publishes on regulatory developments.
