Preqin’s online platform currently tracks a total of 487 natural resources funds that exclusively invest in renewable energy, comprising both funds in market (18%) and closed funds (82%). Following a spike in fundraising activity in 2015, renewable energy has experienced a general downward trend in both the number of funds launched and total capital targeted. As illustrated in the chart below, renewable energy fund launches prior to 2015 were stable, with 31 funds incepted in 2012, 39 in 2013 and 31 in 2014. As uncertainty surrounded the conventional (non-renewable) energy industry following the decline of oil prices in 2014, renewables became a more attractive investment, resulting in an 81% increase in the number of renewables-focused funds launched in 2015. In 2017, this figure was 40% lower than in 2016, but targeted capital was up by 30%.
Aggregate capital targeted by renewable energy funds has followed a similar trend in recent years. However, the largest amount of capital targeted on average per fund was at its highest in 2014 at $1.1bn, and again in 2017 with $746mn – two of the years with the fewest funds launched. The market is increasingly concentrated, with fewer fund managers but larger fund sizes, likely due to investors gravitating towards those managers with the most experience, along with newly available options such as green bonds. In 2014 and 2017, Alinda Capital Partners and Stonepeak Infrastructure Partners each launched a $5bn renewables funds respectively. In 2017, LS Power launched its fourth fund in a series, LS Power Equity Partners IV, with a target size of $2.0bn, larger than the largest renewables fund launched in 2016, the $1.3bn Macquarie Infrastructure Debt Fund (UK Inflation Linked) 2.
In the first quarter of 2018, 23 renewable energy-focused funds were launched, collectively targeting $12bn; this compares with 38 funds launched in all of 2017 targeting an aggregate $26bn. Wind and solar energy are the driving forces behind 2018’s renewable energy onset, which is unsurprising since these sectors have been leaders in the renewable energy industry in recent years.
Even though there appears to be a downward trend in the number of funds launched each year targeting renewable energy, the amount of capital sought could be on the rise given Q1 2018 launch figures. The convergence between the number of funds launched and capital targeted in 2017, which looks as if it could continue this year, suggests that as investors commit capital to established fund managers, they are becoming more confident in their ability to reach targets for new funds. While industry growth seems likely to continue in 2018, established fund managers will feel increasing pressure to generate returns, as investors in renewables will have limited options with which to invest capital.