You have to take notice when one of the nation’s most wealthy hedge funds suddenly takes interest in renewable energy. A $30 billion hedge fund manager recently invested in five solar farms in California. Hedge fund giant D.E. Shaw has also co-invested in a wind farm off the coast of Rhode Island.
Shaw is one of a growing number of hedge funds falling in love with the almost guaranteed payoffs from solar farms. It’s not difficult to figure out why. Most analysts project solar farm returns at between eight and 10 percent in the next three years. That’s better than most corporate funds and even municipal bonds, generally considered one of the safest investments around. Also, most solar farms and renewable energy sources in general come with 20- to 30-year agreements with power companies. Solar farms generate power from the sun, and power companies buy the renewable energy from the solar farm owners in ironclad contracts known as “purchase power agreements.” Few investments come with that kind of certainty.
Hedge funds are ways of pooling the money of several investors with similar interests; and with hedge funds, regulators don’t cap overages. They were dubbed “hedge” funds because return — as well as risk — was once considered high. But they gradually morphed into funds which are rarely “hedged.” Most hedge fund managers predictably prefer high return, low risk, so the vehicle has slowly changed.
Hedge fund managers also love new industries such as solar power. Worldwide, solar farms are not new. Some European countries are so “built out” that they’ve run out of suitable space. But the industry has only recently come of age in the U.S., some say largely because of higher petroleum prices and government incentives which began in 2009.
Solar farm companies built about 42 gigawatts of power in 2013, which is 39 percent more than in 2012. About165,000 American homes can be powered by just one gigawatt of solar farm power.