Expanded allocation of renewable energy sources by NBIM due to escalating capital expenses

In a strategic move to bolster its renewable energy portfolio, Norges Bank Investment Management (NBIM) has announced a new capital allocation of €900 million. This investment forms part of an agreement with Copenhagen Infrastructure Partners (CIP), a Danish asset manager.

The geographical scope of the fund, CIP's fifth flagship fund, "CI V", includes Europe, the US, and select countries in Asia-Pacific. Notably, North America, Western Europe, and developed economies in the Asia Pacific region are within its reach.

The investment, which is an indirect allocation into CIP's fifth flagship fund, "CI V", was announced in conjunction with a €307 million investment into a portfolio of Spanish solar and onshore wind assets in January 2024. However, for the first half of 2024, the fund's investments in this area yielded a negative return of -17.7%. This setback is attributed to the rising cost of capital.

Despite this initial challenge, Mie Holstad, CIO Real Assets at NBIM, has stated that the agreement will enable investment in renewable energy projects in the development stage. "CI V" is focused on greenfield investments within large-scale renewable energy infrastructure, according to CIP.

The fund will focus on a diverse base of assets such as energy storage, offshore wind, onshore wind, and solar. This diversification aims to provide further investment possibilities and exposure to other parts of the value chain.

The investment is considered a valuable addition to the portfolio NBIM is currently building. In April, two additional investments were made: a 40% stake in two solar plants in Spain for €203 million and a 37.5% acquisition of an operational offshore wind farm in the UK - Race Bank - for £330 million.

The opportunity exists to continue building knowledge and experience with new markets and technologies. The geographical scope of "CI V" aligns with a management mandate received by NBIM from the Norwegian Ministry of Finance in 2019, which allows asset allocation into unlisted renewable energy infrastructure.

However, the agreement's warnings of investment risks in unlisted renewable energy infrastructure are not lost on NBIM. As stated in the Government Pension Fund Global's latest half-year report, these risks are a reality that must be navigated carefully.

Nevertheless, the investment in "CI V" offers a promising avenue for NBIM to further its commitment to sustainable and renewable energy investments. "CI V" reached a first close at €5.6 billion in June 2023, and with NBIM's latest allocation, it is poised to make significant strides in the renewable energy sector.