Majority of UK pension funds set to increase renewable energy allocations

The vast majority (95 per cent) of UK pension funds and insurers expect to increase their allocations to renewable energy assets over the next five years, research from AlphaReal has revealed.

Of those, more than one third (35 per cent) expect to increase their allocation by up to 10 per cent, while nearly half (44 per cent) plan to raise allocations by between 10 per cent and 20 per cent, and 16 per cent are set to boost their allocations by more than 20 per cent.

In contrast, the remainder of respondents say there will be no change (3 per cent) or a decrease (2 per cent) in allocations to renewable energy over the next five years.

Pricing was a key factor, as the research found more than two fifths (42 per cent) of respondents think the current levels of pricing and valuations for UK renewable assets are “very attractive”, while 49 per cent think they are quite attractive, and the remaining 9 per cent think they are reasonable.

In line with the rise in demand for renewable energy, UK pension funds and insurers also predicted an increase in the range of opportunities in the sector, with one-third of respondents projecting “significant” increases, while 63 per cent are expecting slight increases, and 4 per cent expect opportunities to invest will stay the same as they are today.

Commenting on the findings, AlphaReal CIO and head of sustainability, Ed Palmer, said: “Renewable energy is an important component in any sustainable investment strategy, offering long-term return potential while aligning with ESG objectives and playing a crucial role in the green transition.

“A greater range of investment opportunities in this sector will ensure pension funds and insurers are able to allocate to renewable energy both now and in the future.”

Adding to this, AlphaReal head of client solutions, Boris Mikhailov, said that it is not surprising that investors are looking at a wider range of investment opportunities.

“For example, battery storage is getting more traction in the UK as it could be a powerful return enhancer and diversifier of portfolios when combined with well-established and tested technologies such as onshore wind and solar,” he explained.

This article was originally published by Pensions Age, a title produced by Perspective Publishing, the publishers of Better Society.

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