Do Listed Clean Energy Infrastructure Shares Make Financial Sense for Investors?

Abstract

Despite supportive government policies and rapid technological improvements, the participation of institutional investors in the clean energy sector remains relatively limited. One of the key challenges to increase capital flows to clean energy projects is a robust historical record of risk and financial return. Our paper helps to fill this knowledge gap by documenting the past financial performance of “Yieldcos,” publicly-listed equity vehicles holding multiple operational renewable energy projects. We document risk-adjusted returns for Yieldcos in North America and the United Kingdom. Over the period studied, a portfolio of UK Yieldcos generated risk-adjusted returns superior to the broad equity market and a range of sectoral indices. On the contrary, US Yieldco portfolio is characterized by high volatility and relatively poor financial returns. We provide evidence of diversification benefits from the UK Yieldco portfolio, indicating the potential for sustainable energy infrastructure to be characterized as a unique asset class whose risk/return characteristics cannot be replicated from within a diversified investment portfolio.