In the energy sector, one way of increasing returns while limiting exposure to oil and gas price risk is to move away from commodity price risk altogether.
“Renewables is one of the more interesting areas at the moment,” says Chris Tehranian, head of research for Meketa Investment Group. “It’s one of the few areas you can get 10- to 15-year contracts, and we have seen costs come down significantly — nearly 50 percent in terms of solar panels, and huge reductions in the cost of gearboxes for wind turbines, too.”
Starwood Energy senior managing director Brad Nordholm points out that renewables represent the fastest growing source of electricity in the United States. There is also the added attraction that the kind of counterparties offering long-term contracts to renewable power plants reads like a who’s who of blue-chip corporations.
In fact, in terms of investing in a power-generating asset, renewable electricity pretty much ticks every box, including the environmental and social responsibility commitments that investors may have.