James Samworth, a partner at Foresight, talks about the renewable energy market, the power of collaboration and the evolving nature of technology. Foresight is an independent fast-growing company that invests in energy and infrastructure projects around the world
What kind of projects are you investing in and how do you judge where to invest?
James Samworth (JS): We really focus on energy infrastructure. Renewable energy projects and assets or what we would call renewable enabling infrastructure. Things that help balance the grid as renewables grows as a percentage of the generation mixes. That would include solar, wind, biomass, AD, energy from waste, and then things like batteries and match projects, reserve power, standby power. It could include transmission and distribution investments.
In terms of what we look for, we manage a variety of different funds and one of our skills is to match investment opportunities to the right source of capital because those do all have different risk returns, mandates, and preferences.
In general, we want to invest in predictable assets with high quality revenue streams – good contracting fundamentals that offer sensible or attractive risk-adjusted returns. That clearly varies by market, by technology and by asset type, and so it’s not one-size-fits-all.
Our report found that fast-growing companies share three particular attributes – a desire for collaboration, a keen focus on technology and a sense of collective purpose. Are these attributes you look for in other companies? And do you see these qualities in your own business?
JS: So of the three, I would say the first and third, without a doubt, definitely. I think the focus on technology probably less so. I mean, as an infrastructure investor we want reliable, proven technology. We don’t necessarily want to be at the bleeding edge of innovation.
However, collaboration is a huge part of what helps us build our business and the partnerships we’ve built.
And what are the keys to effective collaboration?
JS: It starts with an open mind. You should think about the skills and attributes everybody has, who can do what best and what form of partnership is appropriate for those circumstances.
So, allowing people to maximize their value when they do their part extremely well or they manage things effectively that are within their control. And trying to allocate risk to the parties best able to take it.
What risks do you look out for when investing in fast-growing businesses?
JS: There are a multitude of potential issues. There might be construction risks, there could be pricing risks – power prices or other physical commodities or input fuels and input feed stocks. There could be credit risk counterparty. Or it could be more specific contractual points.
I think a more binary element would be planning and permitting. And then there are reputational risks. That’s very important to us.
Technology was a keen focus for companies in our survey. What are you seeing as the major transformations that technology will bring to the industry and how is it affecting you as an investor in these projects?
JS: I see the technological developments that have really transformed markets as evolution, not revolution. If you look at the macro picture and take two examples in the renewables market – solar and wind – you’ve seen a fairly predictable fall in the cost of those technologies as deployment has grown. Every doubling of global deployment of solar has led to something like a 20% reduction in costs and it’s just incremental improvements. Solar’s curve has been steeper than wind, largely because it’s a silicon-based technology, but we’ve got a very similar curve in wind.
Deployment leads to continuous improvement. When it happens for many years running that’s quite transformative and it’s led to renewables being able to compete on the grid with either a minimal subsidy or even without subsidy in some cases, which is reshaping energy markets and the politics around subsidies.
But I don’t see it as a Silicon Valley-type battle for technical dominance. I think it’s just incremental improvements that play out over a relatively long period of time.
In our report, the vast majority said that battery storage is going to be the most significant type of smart energy technology over the next three years. Is that what you’re seeing and how far advanced do you think that is?
JS: Battery technology is improving fast and it has the potential to solve a number of problems on the grid but there’s a danger that that is a little overhyped. If you just do the maths, batteries can never and will never solve long-term grid buffering problems. However, they’re very good at dealing with short-term issues.
I think there’s a separate question about batteries in electric vehicles and it now looks reasonably likely that electric vehicle growth is going to be fairly substantial. With batteries getting connected intermittently to the grid as people charge and discharge their cars, that clearly could have quite a substantial effect if you add all those batteries up and if you take all that liquid fuel out of the energy system. That could reshape things dramatically.
It’s a very interesting area but I wouldn’t get too carried away just yet.