Solar energy is rapidly expanding and shows no signs of slowing down. Over the past decade, the industry has experienced an average annual growth rate of 50%. Working in real estate, finance and renewable energy, I’ve seen how investors — from the biggest fund management firms to individuals — are taking note, and family offices are particularly well-positioned to invest in this growing market.
Many family offices in the United States already have the reputation of prioritizing alternative investments, and including solar in the mix can have cross-generational appeal, deliver predictable and steady returns, and help to finance our renewable energy future. I’ll first explain why solar investments can be a good choice for family offices. In part two of this series, I’ll discuss the different types of available solar investments.
The demand for solar is rising.
The solar market has grown at such a rapid rate due to declining costs. The cost to install solar has dropped by more than 70% over the past decade. The solar investment tax credit and other state and federal policies have helped to drive this growth. The International Renewable Energy Agency also released a report last year indicating that onshore wind and solar photovoltaic are now frequently less expensive than any fossil fuel resource, even without subsidies. The economic argument for renewable energy resources cannot be denied, and demand and growth are forecasted to continue in the coming years.
And, ESG investing is expanding.
As costs for renewable energy resources like solar and wind decline and demand increases, investors are taking note. There has been some mischaracterization that only certain types of investors (namely, women and millennials) are interested in environmental, social and governance (ESG) investing. In 2019, Morningstar dispelled this myth, finding that 72% of all U.S. investors have “at least a moderate interest in sustainable investing.”
The trend is clear for institutional investors, as well. BlackRock is making headlines with its announcement that environmental sustainability will be a core focus of its investment decisions. The world’s largest asset manager also joined Climate Action 100+, an investor network that pressures fossil fuel companies to make emissions commitments and increase transparency. From top to bottom, investors are paying attention to ESG investment opportunities, including growing markets like solar energy. But what about in between?
Solar fits the existing investment strategy of many family offices.
As institutional investors become more familiar with the financial performance of solar and other renewable energy assets, now could be a good time for family offices to bridge the gap between the largest and smallest investors. This will help to boost solar growth even further to support a transition to carbon-free resources.
Family offices are already recognized for prioritizing investments that have a positive social impact and that deliver predictable, steady returns. Solar investing can check both boxes. The multigenerational appeal of ESG is also a value add for family offices — the Morningstar report noted above-found millennials and baby boomers are equally interested in sustainable investing. Solar projects are also stable, secure, long-term infrastructure that offers low risk and good returns.
A recent UBS Group report found that more than 40% of family office portfolios are already comprised of alternative assets, a category that could encompass solar energy. As with any investment decision, family offices should evaluate their current allocations to determine how solar could fit into their existing strategy and whether it supports their overall mission. Solar investment opportunities are quite varied, which means family offices must be willing to put in the time to research what is out there and identify how institutional investors’ selections might translate to their own portfolios. That’s also why I will share insight on the types of solar investments that are currently available in part two of this series.
Family offices are uniquely positioned to support ongoing solar market growth and can join opportunities that have already been vetted by institutional investors. With the risks and impacts of the climate crisis becoming clearer, family offices have the opportunity to make a difference by investing in renewable energy resources.
Family office representatives can look to broader market cues to determine the most reliable types of solar investments, but they don’t have to simply respond to individual and institutional investor trends — they can take leadership and expand on their legacies of alternative investments that also deliver steady, long-term returns.