Railpen's move towards investing in UK renewable energy resources and digital assets
In a strategic move towards sustainable development, Railpen, the UK's largest pension fund managing £34bn for railway pension schemes, has been actively investing in renewable and digital infrastructure.
Railpen's focus on renewable energy is evident in its approach to UK and early-stage renewable projects. With a bias towards UK infrastructure due to its sterling-denominated liabilities and linkage to UK inflation, Railpen seeks to acquire operational assets and develop projects that optimize revenue profiles through control and ownership. This strategy has led to investments in solar farms, such as the acquisition of the 30MWp Bracks Solar Farm in the UK, and a commitment to expanding its renewable portfolio in early-stage and operational projects.
Railpen's renewable strategy centres on controlled development and acquisition in the UK and early-stage renewables. The fund aims to build portfolios where it has significant control, often seeking full ownership, enabling it to optimize energy supply-demand matching by combining complementary renewable sources such as solar, wind, and battery storage systems.
While explicit plans for expanding digital infrastructure and data center investments are not detailed, Railpen's launch of an AI governance framework for overseeing risks associated with new technologies in its portfolios suggests a forward-looking approach to integrating advanced technology infrastructure. This could potentially align with data centers as part of their broader infrastructure investment strategy.
In addition to its renewable focus, Railpen is also looking for opportunities in the data center space to ensure stable energy security for industrial users. With a pipeline of assets aimed to be connected over the next two to three years, Railpen is exploring synergies between the energy and digital sectors, aiming to deploy capital to support the growth of the AI sector.
Railpen's commitment to sustainability is further demonstrated by its Net Zero Plan, launched in 2021, aiming to achieve net zero greenhouse gas emissions by 2050 or sooner, and a 50% reduction by 2030. This comprehensive plan covers listed equities, corporate fixed income, real estate, private equity, and infrastructure.
Beyond the UK, Railpen also has investments outside the UK, including in the Nordic waste management sector. The fund has started investing in infrastructure assets at an earlier stage, aiming for more growth risk and development opportunities. For instance, Railpen acquired a 50% shareholding in AGR Group, a UK-based sustainable infrastructure developer focused on the energy transition and food security.
Railpen's strategy also extends to providing sustainable district heating solutions, recognizing the need to decarbonise these solutions as the demand for them grows. Within the long-term income fund, there is a 50% infrastructure allocation, with roughly 25% of this in renewables including wind and solar, renewable biomass, and energy from waste, most of which is based in the UK.
Many of Railpen's clients are still open to further accrual, leaving the fund relatively more space to invest in illiquid assets. Cristiana Dochioiu, Railpen's Head of Infrastructure, sees further opportunities in the energy transition, particularly in decarbonising heat networks and public transport.
Railpen also provides administration and investment services for smaller defined benefit funds in the energy and infrastructure sector. Beyond traditional infrastructure, Railpen also has exposure to early-stage renewables through its growth strategy, with 60% of capital deployed, out of which 50% is dedicated to assets such as utility-scale storage and wind.
The UK government's strong backing for the energy transition has aided Railpen's journey in the renewable infrastructure space. With its strategic approach and commitment to sustainability, Railpen is poised to play a significant role in the UK's transition to a low-carbon economy.
Railpen's interest in sustainable living extends beyond renewable energy, as it also seeks opportunities in the data center space to ensure stable energy security for industrial users, potentially aligning data centers with its broader infrastructure investment strategy (digital infrastructure).
In addition to its home-and-garden projects like the solar farms and UK infrastructure investments, Railpen is also investing in the long-term district heating solutions, recognizing the need to decarbonize these solutions as demand for them grows (lifestyle).
