The £14.4bn (€18.2bn) Strathclyde Pension Fund has committed £10m to community power projects backed by the UK’s Green Investment Back (GIB).
GIB, a government-backed development bank, will provide a further £50m of in capital, marking the largest equity funding to date for community renewable energy projects.
Albion Community Power (ACP) will manage the capital with first investments earmarked for a hydro-electric power station in Western Scotland.
Strathclyde, the largest local government pension scheme (LGPS), managing benefits for over 200,000 public-sector workers in Western Scotland, first touted the investment to its board at a meeting in June 2014.
The £10m commitment will be invested over three years, with return expectations between 11-13% based on a five-year exit, in addition to offering an on-going income stream.
The investment, Strathclyde’s first in hydro-electricity, sits within the New Opportunities Portfolio (NOP) for real assets and real estate, which the pension fund has expanded with a raft of new commitments.
In its June meeting, the fund sought approval of six new projects worth roughly £45m while approving £68m in December for an additional four commitments.
Chair of the fund, Councillor Paul Rooney, said he was pleased Strathclyde could provide funding to innovative projects which would otherwise be unable to attract capital.
“There are many great opportunities to generate sustainable, renewable energy at a community level, including here in Western Scotland – but it can be difficult for even the best-structured projects to access good long-term finance.
“The investment made by our members in their own future will support the future of our communities, through improved infrastructure and jobs,” he added.
Chair of ACP, Volker Beckers, said the combination of Strathclyde’s and GIB’s commitments gave credence to institutional demand in the sector.
“Demand for community-scale renewable energy is growing, and having institutional investors will help ACP build many more renewable energy plants in 2015,” he added.
Strathclyde is not the first UK LGPS fund to consider community power projects, with the £5.3bn Lancashire Pension Fund committing £12m in 2013 to a solar power plant in Oxfordshire.
Then chair, David Westley, said the 23.5-year bond would interest members, as they knew pension investments fund worthwhile and sustainable schemes.