OSLO, Aug 30 (Reuters) – Norway’s $970-billion sovereign wealth fund, the world’s largest, should allocate a bigger share of its investments to renewable energy to boost returns, a U.S. energy policy think-tank said in a report on Wednesday. The Institute for Energy Economics and Financial Analysis (IEEFA) also said Norway’s parliamentary elections on Sept. 11 would provide an opportunity to review whether the fund should be allowed to invest in unlisted infrastructure projects, such as wind or solar farms. Norway’s wealth fund pools the state’s revenues from oil and gas production. But a 75 percent drop in the price of oil between mid-2014 and January 2016 has depressed its returns, increasing pressure for an overhaul. The fund, managed by the country’s central bank, has a mandate from Norway’s finance ministry to invest in renewable-only investment to the tune of about $5-8 billion, but some green groups say that is too modest a sum. The finance ministry has twice rejected a proposal from the fund to invest in infrastructure projects, citing political risk and the modest size of the unlisted infrastructure market. The fund currently invests in stocks, bonds and real estate abroad only.
“One way to achieve a good outcome would to be to invest in renewable energy, a fast growing segment of the global energy economy and one that is now widely seen as a mainstream sector with a positive investment outlook,” the IEEFA report said. The IEEFA said renewables were driving deals in the listed and unlisted infrastructure market, estimated to total about $4.8 trillion. Earlier this year, the Finance Ministry agreed with the central bank to allow the fund to increase its equity holdings to 70 percent from 62.5 percent of its total investments to try to boost the fund’s returns. This means the fund will have to re-allocate more than 500 billion crowns ($64.24 billion) over several years. The IEEFA said Norway should invest about 35 percent of this money, or about 190 billion crowns, in renewable energy, spreading it across publicly traded utilities, listed infrastructure companies, and direct investments in listed and unlisted infrastructure.
Each of these investment opportunities have track records with returns that meet or exceed the fund’s historical performance, the IEEFA said. “The Ministry of Finance was shortsighted in its rejection of unlisted infrastructure,” Tom Sanzillo, the IEEFA report author said in an email. “The incoming government has a huge opportunity to boost the Norwegian economy with stable and attractive clean energy investments,” he said.