Deep decarbonisation of energy systems: A diversified approach for family office investors

Why family offices should consider diversified energy infrastructure portfolios

As global energy systems transition toward sustainability, decarbonisation is reshaping investment strategies. Family offices, known for their long-term outlook and ability to make strategic decisions, are uniquely positioned to play a pivotal role in this transformation. Aside from new energy technologies – cleantech – the opportunity to invest in the infrastructure of the energy system is one of the big investment opportunities of this generation.  However, even while investing in infrastructure assets rather than technology, maximising returns whilst managing risk requires a carefully diversified approach.

The investment landscape in the energy transition

In 2023, investments in clean energy infrastructure reached $1.8 trillion – a 17% year-over-year increase – with $1 trillion allocated to power generation, storage, and grid infrastructure. Despite this surge, meeting global climate and socio-economic targets requires an estimated $79 trillion in supply-side investments by 2050, including $21.4 trillion for grid modernisation alone. These figures underscore the immense scale of opportunity and challenge in the sector.

For family offices, this unprecedented investment demand presents an avenue for impactful and profitable involvement. However, navigating the inherent complexities and volatility of the energy market necessitates a portfolio strategy that minimises risk and optimises returns.

Diversification: A resilient path to risk-adjusted returns

The recent report by Foresight Energy Infrastructure Partners (FEIP II), with insights from Aurora Energy Research, reveals how diversification across complementary energy technologies can enhance portfolio resilience. The findings highlight:

Negative correlations among technologies: Certain types of assets, such as renewable energy and energy storage, exhibit long-term negative correlations. For example, fluctuations in solar and wind generation revenues from day to day may be offset by gains in the returns generated by storage or grid infrastructure due to increased power price volatility.

Lower portfolio risk: By blending asset types – generation, storage, and grid components – investors can reduce overall portfolio risk, as measured by the mean absolute deviation of returns.

Balanced returns across scenarios: While technology-specific portfolios may yield higher returns in certain scenarios, a diversified approach ensures more consistent performance across varying market conditions.

Strategic considerations for family offices

For family offices, the ability to deploy capital across diverse energy assets offers distinct advantages:

Resilience in market dynamics: By incorporating storage and grid assets alongside renewables, portfolios become more adaptable to shifts in energy demand, policy changes, and price fluctuations.

Holistic risk mitigation: Diversification mitigates exposure to sector-specific risks, ensuring stability across short- and long-term horizons.

Alignment with decarbonisation goals: Investments in complementary technologies directly support global climate objectives while offering reliable revenue streams.

Insights from FEIP II's Portfolio Approach

FEIP II's diversified portfolio approach exemplifies the benefits of integrating complementary technologies. Their analysis of three technology-specific portfolios versus a mixed-technology portfolio revealed:

• The diversified portfolio achieved mid-range returns but with significantly reduced risk.
• Investing in storage and grid assets alongside renewable energy ensures system reliability and enhances flexibility as renewable penetration increases.

Looking ahead: A blueprint for family office investors

For family offices aiming to make impactful, risk-adjusted investments in energy transition, the key lies in holistic portfolio construction. Strategic diversification across technologies, asset types, and geographies allows for optimised returns while navigating the complexities of evolving energy markets.

Investing in a mix of generation, storage, and grid infrastructure not only strengthens portfolios but also contributes more to achieving global decarbonisation targets – a legacy-aligned opportunity for family offices committed to both profit and purpose.

Learn more

Explore the full report on Foresight Energy Infrastructure Partners’ strategy and insights into building diversified energy portfolios: Deep Decarbonisation of Energy Systems: Foresight's diversified approach to portfolio construction 

The image is Silvermines Hydro, Tipperary, part of Foresight’s portfolio.