The renewable energy sector continues to experience unprecedented growth and transformation, creating a dynamic landscape for investors. As we navigate 2023 and look beyond, several key trends are reshaping the investment outlook for this critical sector.

The Current State of Renewable Energy Investment

Global investment in renewable energy reached a record £366 billion in 2022, up 11% from the previous year despite supply chain disruptions and economic uncertainty. The UK played a significant role in this growth, with £25.7 billion invested in clean energy projects—an increase of 14% year-on-year.

This remarkable resilience highlights the sector's strong fundamentals: declining technology costs, supportive policy frameworks, and growing corporate and consumer demand for clean energy. However, to meet global climate targets, the International Energy Agency estimates annual clean energy investment must triple by 2030.

Key Investment Trends Shaping the Sector

1. Energy Security Driving Accelerated Deployment

The energy crisis sparked by geopolitical tensions has fundamentally altered the renewable energy investment landscape. What was previously seen primarily as an environmental imperative has now become an energy security priority.

Investment implications: We're seeing accelerated timelines for renewable projects, streamlined permitting processes, and increased government support. The UK's Energy Security Strategy, announced in 2022, set ambitious targets including 50GW of offshore wind capacity by 2030, creating significant investment opportunities in this subsector.

2. The Rise of Energy Storage

As renewable penetration increases, energy storage has moved from a niche investment to a mainstream opportunity. Global energy storage deployment is projected to grow at a compound annual rate of 31% through 2030.

Investment implications: Battery technology companies, grid-scale storage developers, and integrated renewables-plus-storage projects are attracting premium valuations. In the UK, the capacity market and frequency response services are creating revenue streams that make standalone storage projects increasingly viable.

3. Green Hydrogen Gaining Momentum

While still in its early stages, green hydrogen (produced using renewable electricity) is emerging as a key solution for hard-to-decarbonize sectors. The UK Government's Hydrogen Strategy targets 5GW of low-carbon hydrogen production capacity by 2030.

Investment implications: Early-stage investments in hydrogen technology companies and infrastructure are positioning for significant growth. Strategic investments along the value chain—from electrolyzers to storage and transport infrastructure—offer varying risk-return profiles.

4. Corporate Procurement Driving Market Growth

Corporate renewable energy procurement reached record levels in 2022, with 36.7GW of clean energy purchased through power purchase agreements (PPAs) globally. In the UK, corporate PPAs are growing rapidly as companies pursue net-zero commitments.

Investment implications: Renewable projects with corporate PPAs offer attractive risk-adjusted returns, combining the stability of long-term contracts with the premium pricing that sustainability-focused corporates are willing to pay.

5. Rise of Community and Distributed Energy

Smaller-scale renewable energy systems—from community solar projects to microgrids—are gaining traction as technology costs decline and regulatory frameworks evolve. The UK's Smart Export Guarantee (SEG) provides a route to market for small-scale generators.

Investment implications: Aggregated portfolios of distributed energy assets offer institutional investors access to this growing market. Companies developing software platforms to manage and optimize these assets represent an interesting technology play in this space.

Investment Vehicles and Approaches

Direct Project Investment

Direct investment in renewable energy projects remains attractive for investors seeking stable, long-term yields. Current market conditions are creating particularly compelling opportunities:

  • Higher interest rates have increased return requirements, creating more attractive entry points for new investments
  • Supply chain stabilization is improving project economics after the disruptions of 2021-22
  • The Inflation Reduction Act in the US and similar policies in Europe are enhancing project returns

Listed Renewable Infrastructure Funds

UK-listed renewable infrastructure funds have experienced share price volatility over the past year but continue to offer attractive dividend yields typically in the 5-7% range. Many are trading at discounts to NAV, potentially offering value for long-term investors.

Green Bonds

The green bond market continues to mature, with global issuance reaching £389 billion in 2022. These instruments offer a relatively low-risk way to support renewable energy development while earning fixed income returns. The UK government's debut green gilt issuance has helped establish benchmarks for this market.

Public Equities

Renewable energy equities experienced significant volatility in 2022, with many pure-play companies seeing substantial valuation corrections. This has created potentially attractive entry points for long-term investors, particularly in companies with:

  • Strong balance sheets that can weather higher financing costs
  • Vertical integration that provides insulation from supply chain challenges
  • Technology leadership in high-growth segments like floating offshore wind or bifacial solar

Venture Capital and Private Equity

For investors with higher risk tolerance, climate tech venture capital offers exposure to the technologies that will shape the next generation of renewable energy solutions. UK climate tech venture funding reached £6.2 billion in 2022, reflecting the vibrancy of this ecosystem.

Challenges and Risk Considerations

Grid Connection Constraints

In many markets, including the UK, grid connection capacity is becoming a significant bottleneck for renewable deployment. Projects with secured grid connections often command premium valuations, while those in the queue face increasing uncertainty.

Policy and Regulatory Risk

While the long-term policy direction supports renewable energy growth, short-term regulatory changes can significantly impact project economics. The UK's windfall tax on electricity generators introduced in 2022 illustrates how quickly the regulatory landscape can shift.

Interest Rate Sensitivity

As capital-intensive assets, renewable energy projects and companies can be sensitive to interest rate changes. However, the impact varies significantly across different subsectors and business models.

Technology Evolution Risk

The rapid pace of technology improvement creates the risk of investing in assets that may become relatively less efficient over their operational lives. This underscores the importance of technology due diligence and understanding future upgrade pathways.

The Outlook Beyond 2023

Looking beyond current market conditions, several structural trends will shape renewable energy investment opportunities in the coming years:

Sectoral Integration

The boundaries between electricity, transport, and heating are blurring as electrification advances. Companies positioned at these intersections—such as those integrating EV charging with renewable generation and storage—may capture significant value.

Digitalization

Advanced analytics, AI, and IoT applications are transforming how renewable assets are developed, operated, and maintained. This is creating investment opportunities in software and technology companies serving the renewable sector.

Circularity

As the first generation of renewable assets reaches end-of-life, recycling and materials recovery is emerging as both an environmental necessity and business opportunity. Companies developing circular economy solutions for solar panels, wind turbines, and batteries represent an emerging investment theme.

Conclusion

The renewable energy investment landscape continues to evolve rapidly, shaped by technological innovation, policy developments, and market forces. While challenges remain, the fundamental drivers of the energy transition—decarbonization imperatives, energy security concerns, and improving economics—create a compelling long-term investment case.

At Asottomno, we see particularly attractive opportunities in integrated renewable solutions that combine generation, storage, and smart management systems. These projects deliver both environmental benefits and robust financial returns, epitomizing our approach to sustainable investment.

For investors looking to participate in this transformative sector, a nuanced approach that considers technology trends, policy landscapes, and project-specific factors will be essential for navigating the dynamic renewable energy landscape of 2023 and beyond.