May 2024 – Focusing on small- and medium-sized businesses at the crucial inflexion point between start-up and scale-up is the key to accelerating Europe’s energy transition, believe RGREEN INVEST’s Founder Nicolas Rochon, Managing Partner Cédric Lacaze and Senior Investment Director Jacques Çikurel. Unlike traditional energy, the space is dominated by small entrepreneurs, and those parties are of critical importance to drive a successful transition.
The French investment management company originally invested tickets in the €20 million-€30 million range, but as investors have flocked to the asset class, the firm’s investment size has also grown; it is now around €75 million-€100 million. The three executives consider how the space has changed, where it is heading, and why it is the smaller players who will be most important in that process.
Q Why are investors flocking to transition assets?
Cédric Lacaze: What makes the energy transition proposition attractive for investors is the natural protection the asset class offers against inflation. Interest rates have gone up, driving discount rates higher and negatively impacting the valuation of the assets.
At the same time, the price of electricity has also increased, driving revenues higher, which offsets the negative impact of rising interest rates and protects the value of the assets. Transition assets thus have a natural hedge against inflation, particularly in countries dependent on fossil fuels, that is not true for other infrastructure assets.
When interest rates go down, as they are likely to do in the future, discount rates will follow, providing an uplift to the current valuations. This means investors deploying capital today would be positioning well for realising the upside in a resilient asset class.
Q What are the main sectors that are attractive to investors at present?
Jacques Cikurel: We think there are three key pillars: renewables, electrification and energy efficiency. Energy efficiency is more in the value-add space and therefore not our top priority, although we could get involved in an opportunistic way. Renewables is the most mature of the three pillars and whilst there are significant opportunities in areas such as solar, wind and hydro power, some areas of innovation may offer the best future returns. We are also looking at areas such as biogas and geothermal and have been involved in one project at Disneyland Paris which is currently small but indicates the potential of the subsector. Electrification is a less mature area than renewables but also somewhere where innovation is important. We see a lot of activity and opportunities in electric vehicle charging and battery storage infrastructure. Storage is clearly going to be very important as we move into an environment where we need to fully capture the potential of renewables.
Nicolas Rochon: That innovation is crucial. You are not going to make significant money by investing only in the vanilla projects. We are constantly looking at areas of innovation such as what is happening in the agri solar area in Europe, where you are combining energy generation with other benefits for long-term sustainability.
[Link to the full round table news, Infrastructure Investor...]