Institutional investors view energy infrastructure as a ‘generational opportunity’ offering stable returns and inflation protection – this is why Blackrock invested in what will be the world’s largest grid-scale battery in Australia, meanwhile J.P. Morgan is also investing in US storage, with energy infrastructure having low correlation to stocks and bonds
Institutional investors are growing increasingly comfortable with the idea of parking their capital in the energy storage sector. In March last year, it was announced that energy infrastructure investor Excelsior Energy Capital had sold a portfolio of 38 US solar energy and solar plus storage projects from its Fund I portfolio to BlackRock’s Evergreen Infrastructure Partners Fund. Speaking when the deal was agreed, James Berner, managing director and head of the Americas for BlackRock’s Evergreen Infrastructure Partners Fund, said the transaction “epitomises the fund’s strategy of investing in long-dated infrastructure platforms with potential future growth well aligned with the energy transition and energy security”.
There is now a belief at Blackrock that investment in energy infrastructure represents a “generational opportunity”. From the asset manager’s perspective, with global markets now experiencing increased volatility, energy infrastructure assets offer stable returns and inflation protection, while also presenting a massive opportunity to diversify investment portfolios.
Blackrock backing Australian ‘Super Battery’
Such is Blackrock’s faith in the potential of energy storage that it has invested in the Waratah Super Battery, which upon completion will be the largest grid-scale battery in the world. The first phase of the 850MW / 1,680MWh project went live in the third quarter of last year. The battery – in which Blackrock has invested US$700 million – covers an area of 138,000 square metres, which is equivalent to 19 football (soccer) fields. Another reason why the Waratah Super Battery has proved to be a particularly attractive investment for Blackrock is that the Australian Government has provided a substantial cash injection, investing £100 million via its Clean Energy Finance Corporation.
Blackrock views investment in infrastructure such as energy storage as a good hedge against inflation. Data shows that infrastructure outperforms other asset classes during periods of high inflation (see chart below). What makes infrastructure assets particularly attractive is that they frequently have revenues that are contracted or regulated over an extended period, such as power purchase agreements (PPAs) or take-or-pay contracts. A take-or-pay clause is an agreement between the contracting parties in which the off-taker will either ‘take’ power produced, or ‘pay’ for the power produced if it is not required.
Source: Blackrock
Alternative assets like private infrastructure – specifically infrastructure that, like energy storage, provides essential services but are owned and operated by private entities rather than the government – have low correlation to both stocks and bonds, thereby offering greater diversification in high inflationary environments. Over the 16-year period from 2008 to 2024, infrastructure returns have had an average correlation to global equities and global bonds returns of just +0.1 and -0.1, respectively, according to J.P. Morgan Asset Management. Infrastructure assets offer a stable yield – they have returned 10-year annualized returns of 10.6 per cent (over the period 2014-23) with significantly lower volatility than public equities. In addition, infrastructure investments often include built-in inflation adjustments at the level of the underlying assets, making them an effective inflation hedge and delivering returns even during a stagflation scenario.
J.P. Morgan made a number of forays into the energy storage sector last year. It was announced that utility-scale battery energy storage system developer and operator GridStor had closed its first tax credit sale with the investment bank in support of its 60 MW / 160 MWh Goleta Energy Storage project in Santa Barbara County, California. In addition, Origis Energy also secured a tax equity commitment from J.P. Morgan for the Golden Triangle I Solar + Storage project – which encompasses a 200 MWac solar project with 50 MW of battery storage – in Lowndes County, Mississippi. And J.P. Morgan is not the only institutional investor backing Origis Energy – in May last year, it was revealed that KKR had provided a $300 million corporate financing facility to Origis Energy to support the development of solar and storage projects. Elsewhere, ArcLight Capital Partners announced earlier this year that a wholly owned subsidiary of the Abu Dhabi Investment Authority had agreed to make a $500 million minority investment in AlphaGen, a power infrastructure portfolio owned by affiliates of ArcLight managed funds – ArcLight’s core areas of investment include renewable energy and battery storage.
Institutional investors will increase their exposure to storage
Times have changed considerably. For a long period, institutional investors were very cautious when it came to investing in energy storage, but now, such is their comfort that some are backing some of the more innovative emerging technologies. For example, in February this year, long-duration energy storage developer and operator Hydrostor secured a $200 million investment from institutional investors Canada Growth Fund Inc (CGF), Goldman Sachs Alternatives, and Canada Pension Plan Investment Board (CPP Investments). The transaction comprised a $150 million convertible note financing commitment from the investors, while CGF made available an additional $50 million convertible development expenditure loan facility to fund a portion of development costs for Hydrostor’s Canadian projects. Among the projects was the Quinte Energy Storage Centre project, a 500 MW/4,000 MWh A-CAES project to be developed in Lennox and Addington County, Ontario.
But this is only the beginning. Institutional investors will greatly increase their exposure to energy storage assets in the coming years, particularly given the significant opportunities that exist in trading the difference between low and high-priced energy. With the greater prevalence of renewables in the energy mix, so energy imbalances also increase, with the result that price spreads will enable investors to derive substantial returns from storage assets. In addition, for investors that have portfolios dominated by solar and wind assets for example, storage provides an increasingly attractive hedge.
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