In this Green Dream video interview, Ross Driver, manager of the Foresight Solar fund, explains how the portfolio is positioned across the world, the challenges for renewables in the UK and how the fund is adding social value.
Watch the full video interview above and read the transcript below.
NK: Hello and welcome back to the Green Dream video series. Today I’m joined by Ross Driver who is fund manager on the Foresight Solar fund. Thank you so much for coming in today. First of all, for those that don’t know, tell us a bit about exactly what the fund invests in to get that exposure to the growing solar space.
RD: It’s a good time to talk about it because we’re just coming up to the 10-year anniversary of the fund that launched back in 2013. For the first five years, it was mainly investing in operational subsidy-backed UK solar projects. That was the first five years and we built up a portfolio of over 700 megawatts, 50 projects here in the UK, one of the largest solar portfolios here in this country.
Following that in 2017, the fund then moved internationally into Australia, another strong market for solar and offering subsidies and strong government support. We built up four projects there and latterly in 2019 we built up a portfolio of four projects in Spain as well from our Madrid office that we have there. We have been developing internationally, but also moving from buying operational projects to going into construction, building the projects out and a more latterly those that are now development stage as well.
NK: In 2020 there was an adjustment to the investment policy to allow investments into battery storage systems. Could you explain a bit about the rationale behind that?
RD: We see that in sort of two angles, really. So we see batteries as being complementary to the solar and the grid offering all over. We’re producing all this intermittent generation through both solar and wind that may be producing at peak times during middle of the day like solar or windy in the middle of the night, which isn’t necessarily when the energy’s required.
This country is going to need a lot of energy storage and battery storage to store that energy to release it at the time that the grid needs it, like when we all go home to switch on the kettle, the oven and get ready for dinner. We see that as a differentiated revenue stream as well that’s coming through. It’s more of a balancing and trading, more merchant strategy, but we see that as being very complementary to the solar investments as well. There is also the angle that we probably more going forward would look to build projects that are what we call co-located. So you’ve got the solar project with the battery storage elements on it right from the start, which is an optimised way to look at it, but we can also think about retrofitting some of these batteries onto some of our projects too, to balance help balance out the energy generation as well.
NK: Solar is very much on the ‘E’ of ESG, but you also consider social value as well. Can you explain that and how that fits in?
RD: We put something out in our last annual report around social value. I think at a higher level, everything that we do in our funds, and we’d hope most of the funds that Foresight manages really, would be looking to invest in projects, energy generation, energy transition, sustainable values that add social value.
So, what are we looking at in terms of the mix on that? I think Foresight, although it’s probably always done from the outset, 10 years ago, we’re looking to projects that reduce carbon, reduce the carbon footprint, take that off. There are values that can be assigned to this. We’re adding social value in a way that a lot of the projects we had from the early phase in the UK also had community benefits in them that we pass on to the local communities. We’re a long-term investor, so we see ourselves being in these projects for the life of the assets and therefore we want them to have good relations with the local community and become not just part of the landscape, but also integrated into the society as well.
And then the final point is also when we’ve been building these projects, especially the newer ones, looking how we can use the local communities in the supply chain as well. I think it’s fair to say it is actually our in-house sustainability team that we have at Foresight that quantify this, something that we’re always doing, and so they’ve gone through something that’s called the ‘TOMs’ appraisal system. That’s themes, outcomes and measures. So actually looking to put monetary values on the carbon reduction, the community benefits, which is kind of simpler and also local importance and things like that. It still has its limits but it’s trying to sort of put a bit of measure out there and some comparability about how different funds can see what they’re adding in a social value sense.
NK: We understand that it is a very difficult area to measure and it’s good that you’re starting to look at this. Are you concerned about this apparent rollback in green policies in the UK? We’ve be seeing a lot of pressure on the PM from sustainable investment experts and climate scientists to stop some of these approvals of the dirtier, the browner industries that he’s been going through at the moment. So is this a big concern for you?
RD: I think it’s part of the equation and it’s quite it’s quite complex at the moment because on the one side, particularly for energy generation, there have been some positives in terms of planning. And I say this completely a-politically in terms of just what we see for rolling forward renewables, really. The planning system has eased somewhat and that’s when we’re working with developers they are more positive around that. I do think regardless of the scaling back of some of this, that we are probably going to struggle to hit net-zero targets anyway. Aside from those policies and I think there is a bit of a policy, one could argue almost a failure here in terms of how you look at this, the failed offshore wind auction and a failure to acknowledge that prices had increased, which industry was saying, and that fell flat on its face.
And also the messaging that’s going to investors at the moment. We are in a global race for investment and it’s not just the UK, the UK has to see how it’s positioned versus the rest of Europe, the US that’s got its IRA subsidy regime, the EU has come through with its own and other international markets. These things are not helping necessarily with attractiveness for investors.
And I’d say we will go, although we are UK headquartered and domiciled, we will go wherever the best returns are for investors as well. The other point that’s on there that I think is adding a lot of uncertainty – markets are very difficult at the moment anyway and it’s not easy. We’re already behind I think in terms of the performance, most of the listed sector is locked out of being able to raise additional funds.
But the elephant in the room is also, REMA, the review of electricity market arrangements. There is a review out at the moment led by Department for Energy Security & Net Zero in terms of how the whole energy generation market could be reset or evolved and I think most of us in investments acknowledge there is the need for this as you’re shifting to a lot of more intermittent renewables.
However, there was about 30 different permutations of what this could be and what it could look like, and we’re still waiting for that to be meaningfully narrowed down. And some of these changes, such as having a regional based pricing or nodal pricing almost, or pays produce, could be fundamental changes to the market that may take up to seven to eight years to inplement.
So you’d have a long period of uncertainty there about what a new market is going to look like that could detract from investment up to 2030 when we’re actually looking to build that grid. I think it’s a bit of a balance between having the perfect system and also encouraging the investments in the first place.
NK: On that note, what about the rest of the world or the rest of your outlook for the solar space or wherever the biggest opportunities?
RD: Yeah, I think there’s the last couple of years, and especially given the what’s happened in Ukraine with the Russian invasion there, a lot of European countries are now looking to wean themselves off of Russian gas. There’s been a big push across continental Europe as well to be pushing forward with solar, also wind projects and others. A lot of push into renewables there. Europe has seen some of the biggest growth in terms of market so they’re going to be adding a gigawatt plus of solar annually.
You have longstanding market such as Germany that are building out huge amounts. I would say in some ways the higher interest rates across not just the UK but Europe as well may be helping investments into that because it’s typically been very low returning for pension funds in the domestic market, so could bring that market into play, particularly on the development side, but also core markets for us such as Spain, we’d also be looking elsewhere across Europe.
Interesting to see potentially other markets outside of that. I think we’d predominately be focused on OECD countries. We’ve been in Australia, and have looked at the US and others, but it comes down to what the what the revenues look like really.
NK: Thank you for sharing all of that with us. We always end the Green Dream with this question: What is your favourite sustainable drink or snack?
RD: I have heard this one before and this might be a bit of a fudge because I’m not out for promoting any specific brands. But whenever I go home back to my family place in Lancashire, which is where I’m from originally, the tap water there is far better than anything we get down south because it comes filtered from the from the Lake District. Better than any bottled water. And also a lot of friends who also grow their own home produced fruit and veg. And we have some good organic shops in North London. So that’s what I’d go for.
NK: Brilliant. Thank you very much for your time.