UK investors turn to renewables amidst Iran war

Since the war in Iran began in late February, investor confidence in the energy transition has accelerated. Energy security – once the Achilles heel of energy transitions – is now the cornerstone of its appeal.

Investor interest in clean energy has risen as a result. The S&P clean energy transition index, for instance, is up nearly 17% since the beginning of the war.

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The latest evidence in that direction comes from the UK Sustainable Investment and Finance Association (UKSIF). According to a new UKSIF member poll, respondents overwhelmingly expect a spike in investment in renewable energy following the war in Iran.

Capital incoming

Investors with a collective £5.5tn under management responded to UKSIF’s latest survey. The results show investor confidence in renewable energy investment has risen in the aftermath of the war.

87% of respondents now expect a spike in renewable energy investment. A similar share reported their long-term confidence in energy transition investments had increased since February.

“The survey shows that investors believe this renewed focus on energy security will drive increased capital flows into renewable infrastructure assets”, commented UKSIF chief executive James Alexander.

“The traditional energy trilemma has collapsed. Energy security, affordability and decarbonisation are no longer competing objectives, with renewables now representing the preferred solution for all three. It is no surprise that investors are responding accordingly”, he adds.

Twin shock

The fossil fuel price shock that followed the beginning of hostilities marks the second of its kind this decade. Russia’s invasion of Ukraine in 2022 is an example fresh on most investor’s minds.

Twin oil price shocks within the same decade were last seen in the 1970s. Analysis from think tank Ember highlights a key reason why this time is different – low cost alternatives available at scale.

Joe Crehan investment director at Greenbank holds a similar view.

“Just as the twin oil crises of the 1970s accelerated the strategic shift towards energy independence, the Iran conflict, which marks the second fossil fuel-driven energy crisis this decade after Russia’s 2022 invasion of Ukraine, is driving accelerated demand for renewables as the most secure path forward”, he explains.

Opportunity set

A rising tide of capital allocation is also being met by an expanding investment universe. When renewables operator Thrive Renewables floated a crowdfunded bond earlier this month, 800 investors backed it – raising £5m. To date, Thrive has raised over £65m in crowdfunded instruments.

Investor confidence is spreading beyond generation to other components of the value chain. “In our view, renewable energy is inherently less risky than oil and gas, but the same principle applies across the wider value chain”, said Beverley Gower-Jones, OBE, founder and managing partner at the Clean Growth Fund.

“The UK’s clean technology ecosystem is rich with innovation and opportunity across every sector of the economy from energy and transport to food and agriculture, the circular economy, buildings, and industry”, she adds.

UKSIF’s poll – conducted during the month of April – offers a timely glimpse into investor responses to the war in Iran. The findings support what is now an emerging consensus – the twin fossil fuels shocks of the 2030s will likely expedite the rollout of renewable energy.

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