Investors shift focus to batteries and solar, but go cool on hydrogen

Investors are eager to transition their funds into battery storage and solar energy projects, as the energy transition accelerates the flow of money out of fossil fuels and into clean energy. But, despite the hype,  enthusiasm for hydrogen appears to have tempered, a new report suggests.

The changing trends in investor appetites have been detailed in a report prepared by law firm Ashurst, which surveyed almost a thousand senior managers involved in investment decisions in companies across the G20, including Australia, with an average annual turnover of US$8.8 billion (A$12.2 billion).

The responses show a surge in investor interest in battery storage technologies and solar energy projects over the last 12 months, and most opportunities are found in North and South America, while both the UK and the Australasian regions are falling behind.

“North America continues to lead the world among the G20-based respondents for current and intended investment in renewable energy, energy transition and decarbonisation technologies,” the report says.

“It was followed by South America, which has overtaken the Middle East compared to the results of our 2020 research.”

“Activity is surging in the Americas, while the investment intent of respondents in other markets, including Australasia and the UK, is behind relative to other regions. This likely reflects the high growth opportunities in the Americas and Southeast Asia.”

In the 2021 survey, two-thirds of investors (67%) said they had already, or were planning, to make investments in energy storage technologies, up from less than half (47%) in the 2020 survey.

Battery storage ranks as the preferred storage technology for investors – who have been attracted by rapid improvements in performance and cost reductions.

Solar projects have enjoyed a similar surge in investor interest, with 69 per cent of survey respondents saying they had or were looking to invest in solar projects, up from 52 per cent a year prior.

But the growth in investor interest has not been uniform across all clean energy technologies, with the proportion of investors intending to enter the hydrogen space falling from 40 per cent in 2020 to 31 per cent in 2021.

Interest in hydrogen has surged in recent years due to its potential to provide a storable and flexible form of zero emissions stored energy.

However, hydrogen will face competition from other clean energy technologies in some industries, particularly in sectors like transport, where electric vehicles are seen as the most likely technology winner.

Investor appetite for onshore wind projects had also fallen, with one-third of investors (33%) looking to maintain a presence in that market, down from 42 per cent a year prior.

Overall, however, investors remain eager to transition funds into industries set to benefit from the energy transition in response to technological advancement and the growing pressure on investors to implement climate-friendly investment policies.

The Covid-19 pandemic appears to have had little impact on investor understanding of the need to fund responses to climate change.

More investors now report that they feel pressure to switch to clean energy investments from competitors, customers, and suppliers compared to the pressures from government or advocacy groups.

Head of energy for APAC at Ashurst, Paul Curnow, said that ongoing technological improvements were helping to underpin investor confidence in cleaner technologies.

“Confidence in technology is growing and will bolster the willingness of organisations to invest. However, as our research identifies, business strategies will also be influenced by the availability of greenfield developments and access to an appropriately skilled workforce,” Curnow said.

“Our research highlights how corporates across many markets are moving ahead of government policy and regulation as institutional investors, asset managers and financial institutions, including central banks, increasingly set the pace and direction of net zero investment.”

“As we move towards a carbon neutral world, it is clear many organisations will need to develop new business models. They will also need clear policy directions from governments to plan for a clean energy future,” Curnow added.

The survey found that a majority of investors were looking to accelerate the flow of investments from fossil fuel industries into the clean energy sector, with more than two-thirds of companies surveyed saying they had a zero emissions target in place, with a further 29 per cent of companies having one under development.