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Buying renewable energy projects is not enough to claim ESG credentials

Buying renewable energy projects is not enough to claim ESG credentials 1

By Gareth Brown, CEO, Clir Renewables

As the effects of climate change become more apparent with every passing year, governments and businesses are developing and investing in renewable energy at an unprecedented pace. Investment firms and funds, driven by activist shareholders, public pressure, and the long-term potential of more climate-resilient infrastructure, have widened or shifted the focus of their portfolios to incorporate green energy projects.

However, while this boom in green investment is driving the installation of additional renewable energy capacity as new projects are financed, some investors are focusing on acquiring existing projects to claim green credentials without the risks or costs associated with new projects.

In some cases, renewable energy projects are “flipped” from one fund or asset manager to another and so on, without any intervention to fix root causes of underperformance. This is not only sinking investor’s money into purchasing less profitable projects, it also detracts from the supposedly green credentials of this investment.

First, underperforming projects produce less green energy. This is an obvious point, but one we have to address.  If a project is predicted to have a certain annual energy yield, and falls short, energy demand on the grid is filled by other power sources. In the vast majority of cases, these power sources are fossil fuel-intensive, so underperformance should be considered to have its own carbon footprint.

Second, underperforming projects produce lower returns for investors, justifying fears that green investment isn’t profitable. It has taken a substantial decrease in technology costs for wind and solar to be considered financially viable outside of subsidy schemes. If we are to build enough new renewable energy capacity to reduce emissions on an international scale, investors cannot be swayed against this sector by a record of unimpressive returns.

Buying a wind farm or solar array is a great first step to “greening” a portfolio, but an acquisition alone cannot be enough to claim ESG credentials. Taking steps to quantify and assess performance will be key to ensuring the long-term investability of renewables in the decades to come.

Using data to quantify performance and assess yield on a portfolio-scale is already commonplace in other industries. We have seen Big Tech firms, such as Google and Amazon, use the latest advances in data analytics and machine learning to optimize performance for functions as varied as shipping routes or public healthcare – now, the renewable energy industry and its investors must leverage the same data approaches to ensure the success of every new project in a portfolio.

For example, at Clir, we take all data relevant to a renewable energy projects’ performance – from turbine or panel SCADA data to geospatial maps to historical and predicted windspeed – and run it through our platform. The algorithms benchmark performance against all of the same or similar models that have ever been run through its system.

Through Clir’s advanced analytics, owners can identify not only instances and causes of underperformance, but opportunities to increase energy production and more effectively predict future energy yield. During the third quarter of 2020 alone, we supported over 1.2 GW of US wind farms in increasing performance by 25GWh per annum – adding $1.1m to project owners’ annual profits.

More accurate energy yield predictions are crucial for informing future financial decisions, such as re-negotiation of insurance terms or valuation during M&A. As ESG investment moves away from the initial burst of acquisitions, owners will have to gain a full understanding of their new assets’ performance through data to assess how green and how profitable their portfolio really is.

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