Sanctions Exposure: Peeling Back the Layers
Apr 14, 2022
by Tom Hollobone

Fri, Apr 1, 2022
Over the past few years, both the European and North American markets experienced a significant rise in capital investments in renewable energy assets. Global investors have drawn an interest in solar, wind and nuclear options.
Renewable energy projects have been particularly attractive for sovereign and other institutional investors globally. On the pre-development level, they provided higher returns. And for those investors buying operating assets, they provided a more predictable stream of revenues. The push toward environmental, social and governance (ESG) strategies has encouraged many investors to diversify and increase their exposure to the renewable energy industry. Russia's war on Ukraine also highlights the energy security element, since renewable energy is still a limited part of the energy mix in many major economies. In 2020, for example, renewable energy sources made up around 37% of gross electricity consumption in the EU, according to the European Environment Agency, and thus oil and gas dependencies still play a role in national security and foreign policy.
Although renewable energy investments are becoming increasingly important to global markets, recent geopolitical events and economic developments have increased investors’ concerns. Renewable energy transactions may take a long time to negotiate and the risk profile of a project may change dramatically over time.
Consequently, there are several key elements that investors and entrepreneurs should consider when evaluating renewable investments, especially in light of the current economic and political environment.
There is no doubt that investing in renewable energy assets is necessary to achieve climate goals, improve energy security by adding renewables to the energy mix and could provide better financial results. The events of the past month were a wake-up call for the industry, reminding everyone of old and new risk factors in the energy transition. A more cohesive and comprehensive approach to risk management in the renewable energy investment process can address many of these factors. It remains to be seen if and how market participants will take advantage of this critical moment to solve longer-term challenges.
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