Aware Super intensifies clean energy pursuit
The $102 billion (A$160 billion) superannuation fund Aware Super is showing its commitment to energy transition with new projects.
Last month, the fund announced plans to invest around $1.3 billion (A$2 billion) into clean energy projects, beginning with a $191 million (A300 million) partnership with renewable developer Birdwood Energy.
"Our objective is obviously to deliver the best risk-adjusted return for our members, and to do so responsibly. So clearly, the energy transition is an area we can't ignore," Jiren Zhou, a portfolio manager at Aware Super, told AsianInvestor.
Aware Super
Aware Super already has an existing portfolio of roughly $1.3 billion in renewable energy assets, mainly in utility-scale wind and solar projects. In contrast, the partnership with Birdwood will focus on small-scale solar and battery storage projects being built around the grid.
“For us to continue investing in the clean energy sector, we need diversification in our portfolio to match the risk of those larger-scale projects. We thought a lot about what we could do and distributed energy is an important element [of] energy efficiency,” said Zhou.
This move follows Aware Super's history of backing clean energy and environmental commodities.
On January 11, the fund increased its equity stake in Xpansiv, which provides integrated technology and network capabilities that underpin the entire environmental commodities sector.
The fund’s injection of growth capital, alongside other institutional investors, was used for strategic growth initiatives, including the company’s acquisition of Evolution Markets Inc, a services provider in the global carbon, renewable energy, and energy transition markets space.
Last year, Aware Super also made a cornerstone investment into North Harbour Clean Energy (NHCE), a company focusing on renewable energy storage projects. NHCE looks to develop and operate renewable energy storage projects with a focus on two already-commercial storage technologies: closed-loop pumped hydro and vanadium redox flow batteries.
SMALL PROJECTS, BIG POTENTIAL
The majority of the projects pursued in the new partnership with Birdwood Energy will be 30-100 megawatts although there would be some larger projects in the mix, according to Birdwood’s chief executive Scott McGregor.
The complexity of managing small-scale and distributed renewables has meant these markets have been neglected as institutional investors, such as pension funds, tend to flock to large-scale assets because they are able to make bigger-ticket investments.
Birdwood
"There's no shortage of capital, but a shortage of deals and pipelines and getting those pipelines unlocked," McGregor told AsianInvestor.
Many of the larger utility-scale and solar project have faced delays within Australia due to the need for batteries and distributed energy resources.
“There are existing distribution lines that [are] in Australia, so rather than going to build new transmission lines to connect the big projects— which is why a lot of the big projects are stuck—we're focusing on the existing distribution and transmission infrastructure, so we can deploy it faster,” said McGregor.
Birdwood’s focus on small-scale solar and battery energy storage systems means grid connections are quicker and projects can be finalised faster.
“This partnership is really about rolling up a lot of existing small to medium sized projects, primarily. There's lots of great little projects out there, great companies, and teams, but they don't have the capability or the scale to attract the right capital. We want to unlock a lot more of those, get them to financial, investable, stage, and scale," McGregor said.
LOOKING TO THE FUTURE
Zhou and McGregor both highlighted the broader significance of the clean energy transition for Australia.
"Our job is to create better financial returns for our investors. So that's first and foremost. However, doing that we can't ignore the energy transition which is an important part of our investment thesis," said Zhou.
“We are a responsible investor, and we all need to be making responsible investments for our members, for society, and for the environment.”
Aware Super welcomed the passage of the Australian Government's Climate Change Bill in 2022, which enshrined the nation's carbon emissions reduction targets in legislation.
The fund’s CEO, Deanne Stewart, described it as a vital step forward at the time. Through its Climate Change Portfolio Transition Plan, Aware Super has set emissions reduction targets to help achieve net zero emissions in its portfolio by 2050.
“Australia has the potential to be the first fossil fuel energy grid that converts to net zero in the world,” said McGregor.
Australia has a heavily carbon-based energy infrastructure, unlike countries like Switzerland, Austria and New Zealand which are already reliant on hydro-based energy.
Still, McGregor predicts the country will achieve net-zero a lot faster than anyone might expect.
“There's a huge opportunity here, but you've got to have technical experience and you've got to have operational experience to do that. It's very exciting and there are good returns for investors.”