Handling transition risk via diversification

17.04.2025

Expert insights: In the last couple of years, the pace of renewable energy transactions has slowed. In this commentary, Kai Rintala explains how diversification is the best way to capture the upside of the renewable energy transition and find opportunities in the shifting market environment.

In the last couple of years, the pace of renewable energy transactions has slowed, mainly due to higher interest rates and a weaker infrastructure fundraising environment, and investor capital has been tied up in existing investments. This will be reflected in the pace new renewable energy production facilities get constructed, and even more so, the pace at which electricity consuming green transition investments are rolled out.

While this generally indicates a slower pace in cutting carbon emissions, each market has its own features. With a diversified strategy, there are still plenty of opportunities available.

During 2024, our efforts have mainly been focused on continuing the development of our 60-project strong wind, solar and battery project portfolio, and starting construction works on the assets that mature past the development stage. We finished construction on the largest battery energy storage system (BESS) in Finland, and started construction on Čibuk 2, a wind farm in Serbia, as well as Amador, a BESS project in Texas. In early 2025 we started construction on our first solar park in Finland, and next we expect to proceed on construction of a wind farm in Latvia. These are all assets owned by the Taaleri SolarWind III Fund portfolio. The SolarWind III Fund  has 480 million euros in commitments (31 December 2024) and will continue to fundraise until June 2025. These funds will be deployed to turn 12-15 of the projects in the development portfolio into producing assets. The projects that the fund chooses to construct are selected via a Darwinian process, where each market and technology sends its own signals, presenting individual opportunities and risks. Let’s have a closer look at the market status in the regions where we operate.

In the Nordics there is movement towards large scale industrial investments, but the pace is slow. With low electricity prices and good existing infrastructure, the elements are there for the markets to undergo a major leap into low carbon, electricity intensive production, as well as a growing electricity demand for heating and data centres. Most of this is, however, still brewing under the surface. For example, in Finland, electricity consumption has in absolute terms decreased over the last twenty years. While exponential growth on the demand side is expected, the fact for now is that there is an over-supply of electricity in the market. As the over-supply is based on variable production, this equation offers lucrative investment opportunities for the first movers on BESS.

The investment atmosphere in the Baltics, Poland and Balkans is generally driven by a different logic. The share of electricity produced using fossil fuels such as black coal and lignite is large and driving up the electricity prices to a level where new investments into cheaper renewable energy production makes a lot of sense. This trend is expected to continue for many years to come. This offers great opportunities for an investor with the ability to deploy projects in the CEE region.

In Spain, grid access is the main bottleneck for industrial-scale renewable energy projects. Transmission capacity is blocked by the government, and projects that have access to grid are expensive due to interconnection pricing. The large share of solar power production and limited flexibility on the demand side, result in gloomy outlook for the returns on pure play solar investments, but make investments into onshore wind more attractive in comparison. Adding batteries into existing investments is even more attractive.

Texas is a bit like Spain in the sense that there is a large share of renewables, but different in the sense that the market has adapted to the transition. The electricity market is dominated by a 30% share of solar and wind, which is more than any other market in which we operate, yet the market works. The large share of renewables has led to a great demand for BESS to stabilise the system. When the sun sets in the evening and the buildings are still running air conditioning devices, BESS transfers the electricity from the hours when there is an over-supply of electricity to the hours which are short on supply. Flexible electricity demand is also growing rapidly, making further investments into solar and wind attractive despite the large share of consumption being variable.

These markets are all in different stages of the transition. Most markets are expecting exponential growth in electricity demand soon. While these developments are not easy to predict and the shift in the market is rapid, one thing remains certain: the transition into renewable energy has widespread impacts on each market, and the best way to catch the upside is by diversification. The Taaleri SolarWind III Fund can choose from 14 different countries and three different technologies. This is a strong position for us in 2025.

This piece is part of Taaleri Energia's Sustainability Report 2024, which can be accessed here.

Expert insights is a series in which Taaleri's leading professionals offer perspectives and analysis on current topics within their areas of expertise.