90% of UK insurers/pension funds to boost allocations to renewable energy

Written by Adam Cadle

23/01/2024

Ninety per cent of UK insurers and pension funds plan to increase their allocation to renewable energy in the next 12 months, while the remaining 10% said they might make increases, according to research commissioned by Alpha Real Capital.

Of those planning to make increases in renewable energy investment over the next year, 8% said they will make increases of 4-6%; 12% said they will raise allocations by 7%; 21% will make increases of 8% and the majority (59%) expect to increase by more than this.

The bulk (45%) of current allocations to renewable energy are between 11 and 15%. Twenty-one per cent said they invest 16-20% in renewable energy; 16% invest 6-10%; and 18% of investors allocate between 1-5%.

In the next three years, allocations are expected to be significantly higher than today. Five per cent said they will boost allocations by 1-5%; 7% said 6-10%; one fifth (21%) said 1—15%; two fifths (39%) said 16-20%; while just over a quarter (28%) said allocations will increase by 21% or more.

Eighty-five per cent of investors said income generation is their top reason for investing in renewable infrastructure assets, whilst 71% said portfolio diversification was the main reason. More than two-thirds of investors said the asset class is a way to align with their ESG investment objectives. Furthermore, over two-fifths (44%) said renewable assets are a good means to generate long-term cashflows while one third are motivated by the return potential.

In terms of need for immediate yield post investment, 88% of investors said this is a requirement while 12% said it is not.

AlphaReal associate director, client solutions, Stuart Hanson, said: “Insurers and pension funds’ growing appetite for renewable infrastructure recognises that these assets can provide an attractive risk-adjusted return alongside positively contributing towards the transition to clean energy.”

Alpha Real Capital commissioned the market research company Pureprofile to survey 100 UK public and private pension fund, and insurance senior investment professionals in the UK. Collectively they manage £359.82bn in AuM. Interviews were conducted online in November 2023.

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