Schroders Capital's new head of infrastructure on the renewables revival

Little more than three months into her new role as global head of infrastructure at Schroders Capital, Minal Patel is already knee deep in new deals, with ambitious plans about how to grow the business.

Patel was part of the team at Greencoat, the renewables specialist acquired by Schroders in 2021. Her main focus is on investment in the energy transition, to help European economies reach their net-zero targets and investors reap steady returns associated with the infrastructure asset class.

Patel says: “There’s been a rerating of returns in the energy infrastructure market, and we’ve seen an uptick of returns. And now there’s some positive momentum from investors coming into the space, but they are tending to come in at the higher-returning end of the infrastructure sector.”

The higher levels of returns are not restricted to assets at the opportunistic end of the investment scale. She says: “We have just acquired an offshore wind farm in the UK. It’s an operational asset generating double-digit returns for our investors.” 

Patel attributes this to current dynamics in the market where demand outstrips supply. “Three, four years ago, the balance was much, much more in favour of sellers, and prices were higher. Now that balance has tipped and there is a need for sellers in the market.”

Enticing them back will require certainty of execution, according to Patel. “They want to work with parties that they’ve worked with before, that they really trust to be able to deliver,” she says.

There is also pressure on asset owners to start recycling some capital and this means sellers are “slightly more open” to prices that they might not have been a few years ago, she adds. “I think we are in a really good position now, not just for operational assets that can deliver a good double-digit return, but also for some of the newest areas of the market that are coming through.” 

Green hydrogen is one of these new markets. Patel says: “We’ve made a few investments in this space, but we’ve made them in assets. We’re not taking technology plays. We’re not investing in the green hydrogen supply chain where some people have been hurt, just because the growth of that market hasn’t been quite as people expected. If you’re investing in the real asset side – so you own the infrastructure – the returns are presenting quite a good opportunity.”

Patel believes that hydrogen will play an important role, particularly in decarbonising certain hard-to-abate sectors that are not easily electrified. “Green hydrogen will replace the use of either natural gas or blue or grey hydrogen in industrial processes. So steel, manufacturing, fertiliser production – it’ll be those types of uses.

“One of the investments we are looking at, [which] would be an offtaker of renewable energy, is a large paper manufacturer. And making tissue paper is very carbon-intensive. That supplier is retrofitting its own systems so that instead of taking gas they will take the green version.”

Another area of interest is bioenergy. Greencoat made its first move into bioenergy assets with the acquisition of a 40MW plant in the UK in 2019. It acquired Templeborough Biomass Power Plant from Copenhagen Infrastructure Partners.

Patel says that Schroders Greencoat has demonstrated sector-leading performance with both its wind and solar strategies, and “we look forward to replicating that in the bioenergy sector where we see a significant pipeline of investment opportunities”.

Patel believes that the explosion of data centre developments on a massive scale presents another important opportunity for renewable-energy investors.

“We are now at a place where the intersection of renewable energy and data centres will come into play. Data centres consume vast amounts of power, and they need to offset their carbon footprint. One way is for them to be retrofitted with a renewable-energy source that will provide stable income to investors. Being able to secure renewable power is absolutely vital to their business case.” 

Asked where the best opportunities for green infrastructure investments are today, Patel says: “I think the UK is great. The UK is, and will continue to be, one of the leaders in the renewable-energy space. 

“Europe – particularly parts of northern Europe – are great for wind, and Southern Europe, more typically for solar, will be large areas. You’ll also see in certain parts of Europe, certainly the Spanish market, green hydrogen really start taking off, because it’s where you have the lowest cost of renewables so that you can get the lowest cost of green hydrogen.”

While the UK’s Labour government elected in 2024 is “super supportive” of renewables and has said it wants the country’s electricity grid to be fully decarbonised by 2030, Patel is certain this is “not doable”. She says: “The ambition is there, which means that the incentives need to be there, and some of the blockers to development, like planning, like grid expansion [need to be resolved].

“The UK government’s mindset of really wanting to do it, I think, is really strong and really supportive for our industry. And it’s the same with Europe. People want security of supply in the wake of the ongoing Ukraine conflict and affordability of power. 

“The thing with renewable energy is that it is on the trajectory of being genuinely cost-competitive with gas. So if you’re in a space where you’re cost competitive, you really will see strong build-out in the UK and in Europe.”

Patel says institutional investors are becoming more interested in the renewables sector. “Who doesn’t like a mid-teen return that’s asset-backed, and has a subsidy associated with it, or a really strong corporate offtake?”

And the risks associated with construction are “pretty well understood these days”. She says: “There’s a huge volume of assets out there that want to get built. I think the challenge for investors is finding the right assets that have got the right attributes. They need to ask: where is it located? What does the grid connection look like? Because grid capacity is going to be one of the big stalling points for deployment of capital and development of assets. 

“Who doesn’t like a mid-teen return that’s asset-backed, and has a subsidy associated with it, or a really strong corporate offtake?

“I think that if you’re in the real-asset end of the infrastructure market, it’s a great place to be. I think there are some headwinds that you will find if you’re investing throughout the whole of the supply chain, for example, because you’ll have inflationary pressures.”

In January 2024, Schroders and six UK local government pension schemes (LGPS) joined forces to acquire a £700m (€820m) UK solar portfolio from Toucan Energy. Schroders bought the majority of the 53 operating solar farms with a combined capacity of 513.5MWp across England, Wales and Northern Ireland in a deal that represented the largest operational solar portfolio transacted in the UK to date.

The portfolio was acquired by funds managed by Schroders, including Greencoat Solar II and Greencoat Renewable Income, as well as recently launched mandates.

The South West region LGPS funds of Avon, Cornwall, Devon, Gloucestershire, Oxfordshire and Wiltshire said they have jointly committed around £230m to Schroders Greencoat Wessex Gardens to invest in 17 assets with a generating capacity of approximately 196MW. Wessex Gardens is a place-based and locally focused renewable-energy infrastructure fund established last year. 

Patel says the acquisition is a major achievement for Schroders Greencoat, particularly given the size, complexity and number of stakeholders involved in the transaction. The asset is expected to generate high single-digit returns.

Additionally, Schroders Greencoat bought a district heating business late last year. “We invested in Bring Energy [which] operates the UK’s largest portfolio of heating and cooling networks. Heating and cooling networks distribute energy from a centralised source across spaces, ranging from individual buildings to whole towns and cities. It is a growth platform business. But we liked it because the concessions are effectively 25-year contracts with local authorities.”

Schroders Greencoat is also looking at different ways of investing. In February last year, it launched a UK long-term asset fund (LTAF), which it says is the first LTAF to focus exclusively on renewable energy and energy-transition infrastructure, aimed at UK defined contribution pension funds and charities.

The Schroders Greencoat Global Renewables+ LTAF will target wind, solar, hydrogen, heating and storage assets across the UK, US and continental Europe. Schroders said the new fund was a “landmark opportunity for UK pension savers to invest in this strategically important asset class while benefitting from stable, diversifying and inflation-linked investment returns”.

Patel is keen to build on the company’s record of being at the forefront of innovative private-market offerings. She says: “We are thinking about the democratisation of investment opportunities, by innovating our product offering so that we can make our assets available to more people.”