PSP takes dig at renewables’ supply-demand problem

Renewables amount to 25% of PSP Investments’ infrastructure portfolio. CIO Daniel Garant tells Jordan Stutts why the pension might struggle to increase its clean energy exposure.

Canada’s Public Sector Pension Investment Board (PSP Investments) has infrastructure assets totalling C$7.1 billion ($5.6 billion; €4.9 billion) and has been investing in renewable energy since 2007, well before the COP21 agreement last December.

Chief investment officer Daniel Garant believes the momentum from the agreement, which saw 195 countries pledge to lower their carbon emissions, will lead to more competition for assets, but also more opportunities.

We caught up with Garant recently about PSP Investments’ renewable strategy.

When did PSP Investments begin investing in clean energy?

DG: Although PSP Investments is still fairly young, we have been investing in renewable energy for years now. We started investing in the sector in 2007 through a fund and gradually our strategy evolved to direct investment.
Today, renewable power generation constitutes over 25 percent of our infrastructure exposure.

Does that mean you only invest directly these days?

DG: We’re doing direct investments and we’re also investing through what we call investment platforms. H2O Power is an example of such a platform. We bought a company that already owned operating hydro assets and had a management team in place with expertise in hydro development and facility management.

H2O Power is our hydro investment platform for North America. In Europe and South America, our platform is Cubico Sustainable Investments. These platforms allow us to get access to operational expertise and knowledge to build the portfolio and manage the assets.

Canada’s emphasis on hydro is somewhat unusual compared to other markets. How does hydro fit into PSP’s portfolio?

DG: One of the major reasons for the presence of hydro in Canada, I would say, is the very high water potential available for development. For a good hydro project to work, you need the volume of water and you also need the height. The main reason why it’s so prevalent in Canada is because you can find both.

Are you divesting from fossil fuels?

DG: We don’t have a policy that calls for divestiture. We have investment restrictions, which means that there are activities we’re not going to touch. Our approach has been to engage with the issuers to look at their footprint in a view to improving their ESG practices.

I know it’s only been a few months since the agreement, but are we seeing an increase in investment thanks to COP21?

DG: What we’re seeing is increased awareness that clean energy and renewable energy are a big piece of the solution to contain global warming. I think, however, that you won’t see the full impact in just a few months. But I think COP21 created momentum.

What used to be a significant issue with renewables, and I’m talking about solar specifically, is that it was very expensive. Today, people see solar energy as a real option. I saw recently that one of the biggest solar projects is not in the US, it’s not in Canada and it’s not in Europe, as some might think. It’s in Morocco. So we are seeing the evolution of some countries and the increase and the push for renewables.

For us, COP21 was good news because we think it’s going to help support the further development of renewable energy. We think it’s going to create more opportunity.

What is your main obstacle to investing more in renewable energy?

DG: I mentioned earlier that renewable power generation constitutes over 25 percent of our infrastructure exposure.

We can go much higher than that. The issue with renewables is not that we have too much of it – it’s that the supply of opportunities is much less than the demand is. We’d like to get more. We also know other funds would like to invest more.