Norway’s Sovereign Wealth Fund Makes First Investment In Renewable Energy Infrastructure

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Topline

Norway’s $1.3 trillion sovereign wealth fund – the largest in the world – announced its first investment in renewable energy infrastructure Wednesday as part of a diversification away from bonds, equities and real estate amid a global push to fight climate change.

Key Facts

Norges Bank Investment Management (NBIM), the asset management arm of Norway’s central bank, which manages the sovereign wealth fund, agreed to acquire a 50% stake in the Borssele offshore wind farm in the Netherlands from Danish energy firm Ørsted A/S for €1.375 billion ($1.63 billion).

When the transaction closes — in the second or third quarter of 2021 — Ørsted will remain the wind project’s co-owner and operator.

NBIM said Borssele – the second-largest operating wind farm in the world — has a capacity of 752 megawatts and can produce enough energy to supply the annual electricity demand of about 1 million Dutch households.

Line Aaltvedt, a spokeswoman for NBIM, told Forbes that the sovereign wealth fund has a mandate from Norway’s parliament to invest up to 2% of the fund’s assets in renewable energy assets and projects.

The fund was first permitted by parliament to invest in renewable energy assets in 2019 and evaluated eight other such projects last year before buying into the Dutch wind farm.

Tangent

The sovereign wealth fund was formed in 1990 as a vehicle for investing Norway’s vast oil and gas revenues and up to now invested only in stocks, bonds and real estate. The fund now owns stakes in some 9,000 companies around the world, including Apple, Microsoft, and Samsung, and owns about a 1.4% stake in all the world’s public listed companies.

Crucial Quote

“We think we have a competitive advantage in that we’re a large fund that can write a large check. This [renewable energy] is an area where we see a lot of opportunities going forward. For the fund, we see the diversification it can give us,” Mie Holstad, chief real assets officer at NBIM, told FT.

Key Background

Holstad told Bloomberg on Wednesday that the fund – which generated $123 billion in returns in 2020 — is seeking to invest in clean energy projects primarily in Europe and the U.S. Last October, NBIM’s chief executive Nicolai Tangen told Reuters the fund was having difficulty identifying suitable renewable investments due to strong competition and unattractive pricing. Nonetheless, other sovereign wealth funds have also been pushing into renewable energy projects. In January, a subsidiary of Qatar Investment Authority, the sovereign wealth fund of the oil-rich Persian Gulf state, formed a partnership with Italian energy giant Enel to build and operate renewable energy plants in South Africa and Zambia. Last November, a subsidiary of the Abu Dhabi Investment Authority, the world’s third largest sovereign wealth fund, in partnership with the Ontario Teachers’ Pension Plan Board, agreed to invest $1.25 billion in Equis Development, a Singapore-based renewable energy firm.

Chief Critic

However, the Sovereign Wealth Fund Institute (SWFI), a company that analyses the holdings of sovereign wealth funds and other large global investors, cautioned that sovereign wealth funds have been sluggish in moving into renewables. According to SWFI, in 2020, sovereign wealth funds directly invested $10.26 billion in fossil fuel industries, compared to just $1.17 billion in renewables. In 2019, sovereign wealth funds directly invested $6.18 billion in fossil fuels, and $2.89 billion in renewables.

Further Reading

Top 10 Largest Sovereign Wealth Funds In The World (Forbes)

Oman Sets Up $18 Billion Sovereign Wealth Fund Even As Economy Shrinks (Forbes)

Norway’s Sovereign Wealth Fund Hits $1 Trillion (Forbes)