Octopus Renewables wins £150m corporate pension mandate

Octopus Renewables has won a new £150m corporate pension mandate, the Renewable Energy Income Partnership IV (REIP IV), with a large UK-based institutional investor to invest in renewable energy infrastructure.

The fund will invest in a range of renewable assets, including solar and wind energy, in an effort to help boost the UK’s transition to a net-zero economy and drive the creation of green jobs.

Speaking exclusively to Pensions Age, Octopus Renewables co-head, Alex Brierley, confirmed there will be a focus on relatively low-risk assets as well as a focus on the UK.

Also reflecting on the appointment process, Brierley explained that this investor “took their time” and had “spent a lot of time getting into our origination philosophy”, with Octopus Renewables’ long history of investing in renewable energy identified as a key reason for the appointment.

The mandate was awarded amid increased interest from institutional investors and pension funds in renewable energy assets, with Brierley confirming that Octopus Renewables is getting “loads and loads of interest in not only renewable energy but also adjacent sectors of the wider energy transition”.

“This is definitely a big growth area for the industry and a big positive impact area for pension funds to invest in,” he continued.

Despite the growing interest, Brierley emphasised that “there is no shortage of investment opportunities” in this space, explaining that “this is a very mature asset class now”.

“We've had some really extraordinary times over the past two years, and renewable energy has performed extremely well, and in most cases is delivering those long-term predictable stable returns that are so attractive to pension funds and probably has outperformed other infrastructure classes over that period,” he said.

Brierley also said that there has been “really positive” progress, given wind and solar assets can now provide the cheapest form of energy, predicting that this will contribute to wind and solar assets forming the “backbone of global energy markets”.

However, this progress means that government subsidies are no longer needed in this market, leaving managers to work out how to continue delivering the long-term predictable cash flows that investors seek.

He explained: “That means things get a bit more complicated and you need specialist managers in order to help de risk the assets. In the past you were just buying into an asset that had a subsidy that was an inflation-linked 20-year fixed price, which was wonderful stuff to pension schemes who were looking for that long-term predictable return.

“That is still very much available in renewable energy, we're just finding different ways to deliver that same long term stable story and it's getting more specialised.

“I think it's quite difficult to predict what things will look like, but it's why through Octopus Renewables being part of Octopus Energy, we have an evolutionary soup of all the different parts of the future energy system. This gives us as investors, a great view, perhaps even an advanced view on what those future markets are going to look like.

"It also provides foresight of the risks that will be inherent in them, and what opportunities are inherent in them, such that we can lead investors into the right opportunities and manage their exposure over time."

More broadly, however, Brierley argued that a “real global consensus and leadership” is needed, as well as a “very clear path to what will be a fundamentally different energy system in 25-30 years’ time.”

He continued: “We need a global consensus from governments of how they're going to set the path to that future energy system. The horse has bolted and we're on the way to it, so it's whether it's organised or disorganised.

“I believe more strongly today that we are going to see net zero and I think we're accelerating towards it. I think there's so much interest and so much engagement, combined with massive amounts of capital that can move it into this market, move the needle and make real positive change.

“That's exactly what pension funds should be doing for their members to encourage engagement, and ensure their pensions will suddenly become something that's exciting and interesting.

“This market can engage people in making their savings matter and I think that is what I'm most excited about and is what gives me huge optimism that we're going to see the level of investment we need. We just need that global consensus of the collaboration between politicians, scientists, and grid network operators on all of this stuff.”

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