Broadening the renewable opportunity

Lackshana Ponnapalam

Lackshana Ponnampalam

Associate, Manager Research
(Tuesday, Dec, 13, 2022)
|   4 mins

Co-authored by Celine Grace Legaspi

With the transition to net-zero taking pride of place on the agenda of many investors, renewables have dominated the infrastructure conversation over recent years. The amount raised for renewables has almost doubled in just three years, far outpacing growth in other infrastructure assets. Renewable energy development is key to addressing climate change and reaching net zero; however, the success of renewables relies on the development of supporting infrastructure. That also offers an exciting investment opportunity.

What is infrastructure?

Infrastructure refers to physical assets that provide essential operational support to a country or community. Traditional infrastructure investments include transportation, social (such as schools and hospitals), utilities and energy. While the definition can be quite broad, we typically define infrastructure assets as being long-lived, essential for the economic productivity of society and used to facilitate the movement of people, goods and ideas.

Value-add infrastructure investments allow for the enhancement, expansion and repositioning of existing assets or the building of new platforms. We’ve witnessed a significant increase in dedicated renewable funds over recent years, with c.$31bn raised for unlisted renewable funds in 2021. Dedicated renewable funds accounted for more than 33% of all infrastructure fundraising over H1 2021, a 31% increase from H1 2020. It’s predicted that c.$3tn is required globally by 2050 to meet the goals of the Paris Agreement.

Figure 1. Source: InfraInvestor, Redington


The UK currently has c.14GW of offshore wind capacity in operation and 8GW under construction. The Government is targeting a capacity of 50GW by 2030, and there’s already a strong pipeline of offshore wind farms in operation, construction and planning – this currently stands at 43GW, with a further 37GW of potential capacity from the last leasing round. But with renewables stealing the limelight, investment into the essential infrastructure supporting these projects such as seaports and service vehicles is lacking.

The backbone of renewables

As part of our manager research process, we recently visited two supporting infrastructure investments in Aberdeen. The first was the development of a new seaport, and the second was a vessel critical for the servicing of offshore installations in the North Sea.

We began our trip with a visit to the UK’s largest marine infrastructure project – a £400m development of a new harbour to support the Port of Aberdeen which is due to complete in H1 2023.

Aberdeen South Harbour

The development of the new harbour is what we consider a ‘traditional’ infrastructure investment. The existing port has been around for many years and plays a vital role in the economy both locally and nationally. The new harbour will accommodate larger ships and provide the required space for current and future offshore wind farm sites. Beyond the site’s role in the energy transition, it also has a direct social impact on the city of Aberdeen. Should the harbour reach its full potential, by 2035 it’s expected to support over 17,500 jobs and contribute £2.4bn gross value added to the economy.

The harbour provides the supporting infrastructure required throughout a wind turbine’s life. And, given a significant proportion of the future pipeline of offshore wind sites is expected to be located in the North Sea, the harbour has the perfect opportunity to be at the forefront of the transition to net zero, contributing to the UK’s plan to achieve its 2030 wind power target.


Infrastructure support is essential

When we consider infrastructure, we often think of big-ticket assets like bridges, wind turbines and solar farms. But whilst these are indeed critical, their longevity is dependent on specialist providers of materials and/or services.

Following our visit to the harbour, we toured another infrastructure asset: a specialised vessel that provides essential support services to offshore infrastructure installations in the North Sea. The operator of the vessel we visited owns a fleet of Service Operation Vessels (SOVs). SOVs provide accommodation, offices, welfare, workshops and storage facilities – effectively acting as an offshore base for operations and maintenance technicians who work at sea for two to four weeks at a time. These highly specialised service vessels act as the main infrastructure link between the wind farm and operator, and increase the uptime and performance of wind farms by giving technicians quick and seamless access to the turbines.

Whilst such service vessels may not attract as much media attention as offshore wind installations themselves, the success of the SOV and offshore wind markets are interlinked, and the underlying assets share similar infrastructure characteristics. Notably, SOVs have long-term contracted cashflows (10+ years), capitalise on secular trends (strong government support and global decarbonisation) and provide necessary yet supply-constrained services (due to high barriers to market entry) to wind farm operators.


Figure 2. Source: Partners Group, Redington


Given the structural growth in the offshore wind sector, driven by strong governmental support and complementary global decarbonisation trends, the SOV market is expected to see increased growth in the medium term, especially in the UK and Europe. From 2021 to 2030, the UK and Europe SOV markets are forecast to grow 16.7% and 17.7% per annum, respectively. This is aligned with the expected growth of the global offshore wind market (15-20% per annum) and demonstrates the complementary nature of the two.

So what?

Whilst renewables tend to dominate the infrastructure conversation, their success in the energy transition is reliant on supporting services – like those offered by harbours and service vessels. It’s crucial that the investment flow into infrastructure broadens to not only the big-ticket renewable projects but also the less glamorous underlying assets that keep them running. They too offer interesting investment opportunities.

Unless indicated, these are the views of the author and may differ from those of the firm.


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