What are the risks of infrastructure funds for renewable energies?
There are seven main risks: dependence on government subsidies, rapid technological change, weather and location dependency, bureaucratic and geopolitical hurdles, electricity price and cannibalisation risk for renewables, interest rate and refinancing risks and the valuation risk of illiquid assets.
Many funds rely on government subsidies such as subsidies, legally regulated feed-in tariffs or tax advantages to be able to achieve predictable returns. However, there is always the risk that such subsidies will be reduced or eliminated altogether. This can affect the profitability of these funds - and ultimately the return for investors. However, the importance of feed-in tariffs has declined in recent years. Many funds nowadays hedge their revenues more strongly through long-term power purchase agreements (PPAs).
Secondly, the innovative power in the field of infrastructure can also put pressure on fund providers. The constant introduction of new, improved technologies for solar power plants or wind turbines naturally ensures more efficiency in power generation - but it also forces fund portfolios to be constantly optimised and kept up to date. Obsolete technologies dampen efficiency accordingly, resulting in lower returns, which can also have a negative impact on investors’ return expectations.
Another challenge is the dependence on weather conditions. Although solar and wind power are almost unlimited energy sources, the weather conditions must be in place to use them as efficiently as possible. However, this risk can be specifically reduced by experienced fund management and the strategic selection of assets depending on the situation.
However, the arguably greatest challenge when investing in renewable energy infrastructure funds lies in setting up the fund and managing the individual infrastructure projects in which investments are made. In this case, there are mainly complications due to bureaucratic hurdles, supply chain problems or complex approval procedures that the fund operator has to go through. This can lead to delays in the project process, which can incur additional costs and jeopardise the planned returns. In Germany, acceleration laws have recently improved the situation. In 2024, wind permits increased by 85 percent compared to the previous year. There is also a geopolitical risk in the supply chains. Central components such as solar modules and battery cells continue to come predominantly from China. This can make funds vulnerable to price fluctuations and supply bottlenecks.
Plants for the generation of renewable energies have their own market price risk, which is often overlooked. If many solar systems feed electricity into the grid at the same time during sunny noon hours, the electricity price on the market can fall sharply or even become negative at times. This can put pressure on the revenues of investments that sell their electricity directly on the market. The extent to which a fund is affected depends on its revenue structure. Funds that hedge their investments through long-term power purchase agreements or use battery storage to postpone feed-in to more profitable hours can significantly reduce this risk.
Infrastructure projects are often financed to a large extent by loans. If interest rates rise, refinancing becomes more expensive and the value of existing projects can come under pressure. The return requirements for new projects also increase in such phases, which can reduce the selection of fundable projects. Funds that operate with a rather cautious credit ratio and have fixed their financing in the long term are less susceptible to interest rate movements.
Unlike securities traded on the stock exchange, infrastructure assets are not revalued on a daily basis. Instead, the fund management determines the value at regular intervals using models or comparable sales in the market. In 2025, the UK Financial Supervisory Authority (FCA) pointed out that not all providers have clear processes for unscheduled revaluations. Therefore, a smooth performance in the price presentation does not necessarily mean that the actual risk is also low. Funds that are evaluated frequently and with the support of independent experts offer more transparency here.
