Driving Economic Growth by Democratizing Renewable Energy Investing

With the approach of the winter flu season, the United States faces a new wave of uncertainty regarding increasing coronavirus cases and their impact on the tentative economic recovery. One troubling trend has already become clear: job gains have stalled, with the national unemployment rate still stuck near Great Recession levels.

Legal challenges to the recent election results notwithstanding, it appears that Joe Biden has won his bid for the Presidency. As such, one of his administration’s top priorities will almost certainly be resuscitating job growth. To make this effort as effective as possible, the incoming administration should lean into an opportunity that observers have pointed out for years as a powerful driver of future employment—the “green jobs” market. According to the US Bureau of Labor Statistics, two of the three fastest-growing occupations in the country between 2019 and 2029 will be wind turbine service technician and solar photovoltaic installer, with projected growth rates of 61% and 51%, respectively, during that period.

However, the quest to tap into renewable energy’s vast potential for job creation cannot be left to politicians and public servants alone. The private sector has an even more crucial role to play, starting with the very first stage of developing an industry’s infrastructure: capital allocation and investment.Advertisement

By opening up new avenues for American investors to participate in the development of green energy—or, to put it another way, by “democratizing” renewable energy investing—product sponsors, asset managers, product platform managers and other gatekeepers can enable investors across the institutional and retail spectrum to directly contribute to our nation’s recovery while potentially realizing solid returns.

Current Green Investing Options: (Mostly) Well Intentioned, But Insufficient
Green investing has been around for many years, with part of the growth in ESG strategies over the last two decades due to younger people seeking out eco-friendly investment options.

The problem is that the current definitions of “green investing” tend to be overly broad, with little or no direct correlation to the activities that actually create green jobs. Many green funds, for example, include large allocations to companies that may follow environmentally minded policies such as reducing their carbon footprints or using eco-friendly products, but that do not produce green power as part of their core operations. While such environmentally responsible practices are certainly commendable, on their own they won’t drive the kind of job growth we need to pull back from the coronavirus-driven downturn.

Worse, other companies have attempted to take advantage of the increased interest in green investing by engaging in “greenwashing”—a “check the box” approach that exaggerates their commitment to eco-friendly practices while papering over the parts of their business that may actually harm the environment. An oil and gas company that reduces its consumption of paper or makes token investments in biomass research would be one such example.

Forging A Better Path
Clearly, the challenge for product sponsors, product platform managers, and others is to provide options that fulfill investors’ desire to do good with their investment dollars and contribute to green jobs growth while securing solid returns.

One way to accomplish this could be to develop retail alternative investment products in the green venture capital space, similar to the retail-focused funds some private equity firms have launched within the last several years. Such a move could enable retail investors to support innovative, early stage cleantech or other green companies before those firms test the public markets or get acquired by larger enterprises. Such an approach would be highly risky, however, and potentially impossible to adapt to the needs of non-accredited investors.

A better option would be to expand investor access to an approach that has already been tested and proven effective: purchasing existing renewable energy–producing facilities, increasing the efficiency of their operations, and passing their cash flows along to investors.

Such facilities typically already have long-term contracts in place with dedicated “offtakers” such as utilities, large companies and municipalities, which obligate these entities to purchase the electricity generated by the facility at a set rate. This mitigates the operational risk of the facility and provides stable cash flows to investors as well as the potential for the facility’s value to appreciate.

By establishing a robust and flexible secondary market for developers to sell these power projects to stable, long-term operators, this investment model incentivizes those developers to build more green energy facilities—thereby producing more jobs.

Creating A Healthier Job Market And Environment
Obviously, there’s no easy solution to getting our economy back on its feet after the deadliest public health crisis in a century. But by expanding access to proven investment models in the renewable energy sector, we can take advantage of a valuable opportunity to consistently increase job growth in the years ahead—and secure significant benefits for our environment at the same time.

by David Sher, Greenbacker Capital Co-CEO