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Largest Global Wealth Controllers Invest Over $ 12.5 Billion In Renewables Signalling A Strategic Shift in Industry Outlook.

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In a significant financial move that is set to reshape the renewable energy landscape, Europe's leading utility, Iberdrola, and Norway's formidable $1.6 trillion sovereign wealth fund are poised to deepen their collaborative footprint in renewables. Their joint financial commitment, surpassing 2 billion euros ($2.15 billion), signifies a significant milestone in advancing clean energy initiatives, specifically focusing on Spain and Portugal.

At the core of this strategic partnership is Iberdrola's overarching strategy to leverage the sale of minority stakes in renewable projects to bolster its ambitious investments in new ventures and network infrastructure. This symbiotic relationship will accelerate the transition towards sustainable energy sources while ensuring robust financial backing for future endeavours.

In this latest agreement, Norges Bank Investment Management (NBIM), the operator of Norway's sovereign fund, acquired a notable 49% equity share in a 644-megawatt portfolio of Spanish solar projects from Iberdrola, with a transaction value of 203 million euros. This deal is particularly noteworthy as it includes projects equipped with long-term energy sales contracts, augmenting the overall collaborative portfolio to approximately 2.5 gigawatts, encompassing solar and wind assets. 

While Iberdrola retains a controlling stake of 51% in the assets, this agreement serves as a testament to the potential synergies in the dynamic landscape of energy transition with sovereign wealth funds (SWFs) and public pension funds emerging as pivotal players, championing the shift from fossil fuels to renewable energy sources. 

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With a collective eye on the future, asset owners are venturing into renewable energy investments through private infrastructure and energy funds managed by industry giants like Brookfield Asset Management, KKR, and the Blackstone Group. Despite concerns over renewables' intermittency, these investors press ahead, acquiring wind and solar assets and fostering collaborations with smaller developers to drive innovation and progress.

In a notable shift, cash-rich asset owners, including SWFs and public pensions, are now opting for direct investment strategies and co-investments, demonstrating a hands-on approach to advancing renewable energy initiatives. According to the latest available numbers in 2020, these institutions collectively invested approximately US$ 5.5 billion in renewables, which more than doubled to US$ 11.74 billion in 2021. The amount further increased in 2022, with investments surging to reach an impressive US$ 12.5 billion.

Several partnerships exist between sovereign investors and renewable energy companies, with the latest investment by the Norwegian Sovereign Fund marking the first such investment by a European SWF. 

Most notably, there has been an increasing focus on renewable energy initiatives by the Gulf Cooperation Council (GCC) sovereign investors. For instance, Abu Dhabi-based Mubadala Investment Company made headlines by acquiring a stake in German offshore developer Skyborn Renewables. 

 In 2020, another GCC sovereign investor, the Abu Dhabi Investment Authority (ADIA), together with the Ontario Teachers’ Pension Plan Board and the management team of Singapore-based Equis Development Pte Ltd, agreed to invest US$ 1.25 billion in Equis Development Pte Ltd. 

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Moreover, large asset owners are actively forging partnerships and ventures with major asset managers to drive renewable energy investments. A prime example is the collaboration between Temasek Holdings and BlackRock Inc., which established Decarbonization Partners. This innovative venture invests in net-zero-focused companies and firms that aim to reduce or eliminate carbon emissions. Decarbonization Partners is open to third-party capital, further expanding its reach and impact in the renewable energy space.

Even state oil giants are embracing the energy transition. Recently, Saudi Aramco, where the Public Investment Fund is a significant shareholder, announced plans to establish a US$1.5 billion fund to support a global shift towards inclusive and sustainable energy practices. 

Following COP28, where stakeholders recognised that progress was too slow and countries agreed to accelerate the transition to clean energy by 2030 across all areas, the increasing strategic partnerships between renewable energy companies, SWFs, and public pensions mark a humanised approach poised to accelerate the transition towards a cleaner, more resilient future for all.