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Big Data Could Bring Upside to Renewables Investors

Big Data Could Bring Upside to Renewables Investors

Technology and big data will change how electric grids are organized and water is transported, creating upside for sustainable investors that may not be priced in today, said a managing director at Makena Capital Management, which oversees about $19 billion.
Lara Banks, who oversees portfolio management and manager selection for natural resources at the Menlo Park, California-based firm spoke to Emily Chasan on Nov. 6. Comments have been edited and condensed, Bloomberg reported.
The investors in the portfolio are often endowments and foundations, so that gives us the flexibility to look at opportunities that will generate returns over the next 10 to 15 years.
We still think there is opportunity in traditional energy, but we have some investors who would rather not invest in the oil-and-gas space, so we have bifurcated the portfolio into traditional and sustainable natural resources. We expect the sustainable allocation to grow over time.
Nobody really knows how this energy transition is all going to play out. There are so many pieces that some people are waiting a little to see how they fall.
But we already see a big shift in what is happening with oil; coal has not been a good place for returns and renewables are going to be a key growth driver. Our portfolio is more focused on the US, but we invest across the world, and China and India are going to be really important also.
We have not been investing in manufacturers of solar panels, which are facing a lot of pressure. We look more at the renewable power development side. Even there, returns have come down because a lot of capital is looking for renewables.
But since we are looking at energy infrastructure and the value of these assets over the long term, you can look past the day-to-day of what happens at SunEdison or the issues with yieldcos.
For example, we can think about what happens if you add a battery to a solar plant, even if you cannot add it yet. Right now, there are some corporate buyers willing to pay more to access solar power with batteries during the evening, so you can see the value they bring. You do not pay for that today, but that technology gives you upside you wouldn’t be able to have if you were just holding assets for a two-year period.
The upside to having technology improve over time is not fully priced into the market yet. There is further cost compression ahead that will drive returns. Tech upside is stronger in solar right now than in wind, given where we are in the cycle with batteries.
It is not clear yet which type of battery will be the winner and it is not clear there will even be one winner. But when there’s change there is usually opportunity.

 

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