Do Listed Clean Energy Infrastructure Shares Make Financial Sense for Investors?

44 Pages Posted: 21 May 2018 Last revised: 9 Aug 2018

See all articles by Charles Donovan

Charles Donovan

Centre for Climate Finance & Investment, Imperial College Business School

Jianjun Li

Imperial College London, Business School, Students

Date Written: August 8, 2018

Abstract

Despite supportive government policies and rapid technological improvements, the participation of institutional investors in the clean energy sector remains relatively limited. One of the key challenges to increase capital flows to clean energy projects is a robust historical record of risk and financial return. Our paper helps to fill this knowledge gap by documenting the past financial performance of “Yieldcos,” publicly-listed equity vehicles holding multiple operational renewable energy projects. We document risk-adjusted returns for Yieldcos in North America and the United Kingdom. Over the period studied, a portfolio of UK Yieldcos generated risk-adjusted returns superior to the broad equity market and a range of sectoral indices. On the contrary, US Yieldco portfolio is characterized by high volatility and relatively poor financial returns. We provide evidence of diversification benefits from the UK Yieldco portfolio, indicating the potential for sustainable energy infrastructure to be characterized as a unique asset class whose risk/return characteristics cannot be replicated from within a diversified investment portfolio.

Keywords: Yieldcos, Risk-Adjusted Returns, Clean Energy, Infrastructure Investment

Suggested Citation

Donovan, Charles and Li, Jianjun, Do Listed Clean Energy Infrastructure Shares Make Financial Sense for Investors? (August 8, 2018). Available at SSRN: https://ssrn.com/abstract=3175879 or http://dx.doi.org/10.2139/ssrn.3175879

Charles Donovan (Contact Author)

Centre for Climate Finance & Investment, Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Jianjun Li

Imperial College London, Business School, Students ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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