NBIM’s acquisition of a 49% interest in a 1.3GW portfolio of solar plants and onshore wind farms located in Spain marks the first investment in unlisted renewables in nearly two years, but the Norwegian SWF is a long way short of its initial target of 2% AUM in the sector.

NBIM is paying EUR600 million for its stake in the portfolio, with Iberdrola retaining a 51% stake. The portfolio comprises seven solar plant projects and five onshore wind projects with an installed capacity of 1,265MW, of which solar plants make up 80% and onshore wind 20%. Nine of these projects are due to come onstream in 2023-25.

Despite NBIM’s ambitions and the creation of a team of analysts and managers, progress is slow and disappointing. Its previous investment in unlisted infrastructure was a 50% stake in the Borssele 1 and 2 windfarm off the Netherlands bought in April 2021 for US$1.63 billion. At the time, Borssele was the world’s second-largest offshore wind farm in operation, with an installed capacity of 752MW.

While the Dutch windfarm was a mature asset, the Spanish portfolio is under development and at an earlier stage indicating a shift towards supporting growth in renewables and not merely buying existing assets. Investing at an earlier stage is set to lead to higher long-term returns.

In its latest half-yearly report, NBIM reported than in H1 2022 investments in unlisted renewable energy infrastructure returned -13.3% and amounted to 0.1% with results weighed down by an increased capital requirement because of higher interest rates, changes to expected future production and write-downs over the expected life of the project. An increase in power prices in the short term made a positive contribution to the return.

By end-2022, the value of unlisted renewables assets in NBIM’s portfolio totalled NOK12 billion (US$1.21 billion), compared to NOK14 billion (US$1.56 billion) at end-2021, indicating that the value of its stake in Borssele fell US$420 million in just 20 months.

The fund’s real assets portfolio forms a small part of its overall assets under management, but the sheer scale of the fund and its ethical commitment means it will influence trends. NBIM continues to look seriously at offshore wind in Europe, which it forecasts will rise four-fold to 102GW by 2030, and it is planning on making chunky investments.

Climate change risks will inform its entire portfolio management, according to the fund. Responsible management will include holding boards accountable for outcomes of their decisions. At the same time, NBIM will reduce expose to companies with unsustainable business models.

While NBIM’s weight will certainly boost efforts to develop green energy generation, among SOIs it is not a trailblazer but rather a latecomer in the stage of renewables investment compared to peers.

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