Solid performance despite global issues

Triodos Groenfonds performed well in 2020, and by year-end it achieved a major milestone of more than EUR 1 billion assets under management. It has 333 projects, 120 of which were renewable energy related. Financial returns were also relatively strong at 2.1%. But it wasn’t all plain sailing. March saw a dip in inflow correlated to the initial stages of COVID-19 related market turmoil, but by June things had stabilised, which fund manager Angeles Toledo Rodriguez is proud of: “Our response was quick, and the fund was never at risk of being unable to honour its commitments. Its structure and the fundamentals are strong, and we were still able to invest in a lot of projects.”

The onset of the pandemic also initially caused slight setbacks in the construction of a few new projects due to labour and supply chain related challenges, but there were no major delays. Oil and gas prices, which plummeted into negative territory during the year and drove energy prices down, also had minimal impact on the fund. In fact, according to Toledo, demand for renewable energy rose: “It remains a top priority for many countries and we saw more projects than ever before.”

Investment in innovative solutions

The full transition to clean and affordable energy remains elusive, despite wind and solar energy becoming mainstream and reaching price parity: “The shift is not happening fast enough, so we are always looking for new opportunities. We want to support innovation, especially systems that combine renewable energy and technology. We won’t take technology risks, but we do want to make money available to mid-sized projects. We know we can add value because of our 30-plus years of experience. Regardless of how innovative a project may be, we always apply our expertise and strict criteria across the entire value chain, so the environment is protected, and the rights of workers and communities are upheld.”

Toledo anticipates a green hydrogen revolution, even if this will take some time yet. In 2020 Triodos Groenfonds co-financed a wind turbine that will be used to produce hydrogen through electrolysis: “The technology is still being trialled but if it is successful, we will scale up,” she says. Other new technology projects which promise to become very big and relevant in the Netherlands, include heat cooling energy production and storage. Battery storage combined with wind and solar projects is also expected to become very important.

Increased presence in emerging markets

During the year the fund expanded its interest in emerging markets by investing in three new projects: a mini-grid project in Nigeria, a solar rooftops transaction in India , and an increased participation in Construction Equity Fund managed by Climate Fund Managers. This brings the fund’s emerging market total projects to 12, and to date they are yielding attractive risk-adjusted returns.

Toledo is keen to see the fund take deeper presence in emerging markets and the pipeline continues to grow: “These countries are typically big importers of coal, oil and gas, but the moment renewable sources become cheaper, it won’t make any sense to import fossil fuels. By deploying more projects of renewable energy in emerging markets, we not only improve access to electricity, but also enable the democratisation of energy, while avoiding significant CO2 emissions.”

“Producing energy where it is consumed is a very powerful proposition,” she goes on to say. “The impact is unquestionable. It means more jobs, more infrastructure, and more access. It stops dependency on centralised distribution and national grids, and the sun and wind are free resources. It just makes a lot of sense, but it still needs to happen. Development financial institutions like the World Bank, IFC and FMO are leading it, but we are among the first to bring private money to these types of projects in these developing markets.”

Dual purpose projects

Closer to home, the issue of land scarcity in the Netherlands is hotly debated because it raises concerns about energy farms occupying land that could be used for agricultural purposes. Toledo says that Triodos is very mindful of this and to date has only financed solar installations in the Netherlands on rooftops and ex-landfill sites. However, things could be about to change: “We are looking at dual purpose projects and are looking at financing projects that combine agriculture with solar panels. Universities and entrepreneurs have developed technologies to place solar panels above fruit, herb, and vegetable crops. We have done our homework very well; the yield is good; the panels protect the crops and the plastic that typically protects such crops is no longer used. It is a very good example of dual use.”

Future focus

It could be fair to say that the fund appears to be increasingly positioned as an energy transition fund, particularly with projects where local communities are highly involved. As the energy transition unfolds, the main volume of expected investments will be in this sector. Investment in food and agriculture is lower in terms of volume than renewable energy, but not in terms of number of transactions. Toledo attributes this to different levels of subsidies: “We will continue to invest in food and agriculture because it is important.”