Controlling Risk Through Sound Operating Practices
For most energy-producing infrastructure projects, there is an inherent level of risk during the beginning phases of development. Tasks such as selecting the optimal site, obtaining permits and securing financing will always involve some amount of unpredictability.
Fortunately, many renewable energy operators have learned to mitigate these risks by investing in projects that have already moved past the development phase and into construction. This practice significantly reduces investors’ exposure to the possibility that a given project will run into unforeseen roadblocks and have to be discontinued.
Operators of renewable energy projects can further protect investors from long-term risk by establishing solid internal engineering teams that can effectively address common challenges such as lost power output due to soiling in solar farms.
Capturing Solid Investment Opportunities By Avoiding The Herd Mentality
The gap between recent equity market performance and conditions in the real economy should make every advisor and investor nervous. While it is encouraging that we have moved beyond the panicked initial reactions to the coronavirus pandemic, valuations for many companies and sectors seem to have entered “irrational exuberance” territory—at least until we have a clearer picture of how the crisis and its attendant economic impacts will affect companies’ earnings and long-term projections.
In order to put investment portfolios on more solid ground, now is the time for advisors and clients alike to seek out solid investment opportunities that maintain strong fundamental performance along with potentially compelling valuations. With their solid cash flow generation, attractive cost profiles and options for controlling development and operating risks, renewable energy infrastructure investments should be at the top of their lists.
Robert Sher is co-founder of Greenbacker Capital, an investment firm focused on the sustainable infrastructure sector.