Why invest in clean energy?

As the federal government pushes to boost clean electricity capacity by two to three times to achieve a 100% clean electricity grid by 2035 and meet net-zero targets by 2050, it continues to provide incentives to clean energy developers and producers. At the same time, renewables are now the cheapest source of power, allowing the industry’s success to become self-sustaining, according to Rob Stein, President of Skyline Clean Energy Fund, a Canadian private investment trust specializing in clean energy assets such as solar and biogas.

“The renewable industry has already seen tremendous growth and we expect this to continue — not because they are clean, or the right thing to do, although both are true — but because they’re the cheapest [source from which] we can generate power right now,” Stein says. “So, if you’re going to put a dollar in — whether it’s federally, provincially, or privately — it might as well go toward the cheapest form of power; the clean energy and carbon incentive aspects are icing on the cake.”

Stein oversees the Skyline Clean Energy Fund portfolio, which comprises rooftop and ground-mounted solar, as well as biogas facilities, across Canada. “The industry is driving positive social and environmental change, while also fostering emerging clean energy markets across Canada and the world; that’s what makes the space very exciting,” he says.

Positive momentum within the clean energy industry has paid off for Skyline Clean Energy Fund’s investors. To July 1, 2023, the fund’s one-year annualized return was 9.84%, and its three-year annualized return was 9.45%.^[1] As at June 30, 2023, the fund had over $293 million in total assets under management.

A focus on solar and biogas

When Skyline Clean Energy Fund launched in May 2018, generating strong, predictable cash flow was priority. Ontario’s solar market was one of the best-positioned to deliver that cash flow, as many solar assets in the province are backed by 20-year Feed-in Tariff (FIT) contracts with the provincial government, and as a result, those assets have become a foundational investment for the fund. By the end of 2020, Stein and his team had acquired 65 solar assets, all with long-term contracts, when an investor approached them with an offer to tour his biogas facility in Elmira, Ontario. The team purchased a majority stake in the facility in 2021 and retained the previous owner (and developer) as partner.

“Prior to our offer to purchase the Elmira biogas facility, the operational-heavy nature of biogas had made us reluctant to invest in that class of renewables. We were able to get comfortable through partnering with a strong operating team that had many years of experience, along with keeping the original owner and developer in the business as a minority stakeholder,” Stein says.

The closed-loop nature of biogas’ renewable cycle was an attractive feature for the Skyline Clean Energy Fund team. The loop starts with farmers who grow food and send it to cities, where it’s consumed. Since there is a large government push to divert organic waste from landfills, many municipalities pay biogas owners to take it. At the Elmira biogas facility, the organic waste is broken down, creating a gas through a process called anaerobic digestion. This gas is used to power a combined heat and power system that generates electricity, which is then sold back to the grid under a long-term contract.

“The renewable industry has already seen tremendous growth and we expect this to continue — not because they are clean, or the right thing to do, although both are true — but because they’re the cheapest [source from which] we can generate power right now.”

“We’re paid to take the waste. We’re paid to generate and deliver the electricity. And we’re left with this rich organic fertilizer called digestate, which we sell back to the farmers. They replant and fertilize their fields and grow the food, and the cycle starts all over again,” Stein explains.

Additionally, in 2023, Skyline Clean Energy Fund acquired a majority stake in a large biogas facility in Alberta that combines cattle manure from farmers, as well as organic waste from grocery store chains and other sources, to refine into renewable natural gas (RNG), rather than electricity. The renewable natural gas is then sold through a 20-year offtake contact and delivered onto the natural gas grid.

“The federal government is putting a lot of emphasis on biogas because it looks to solve both a waste problem and an energy problem,” says Stein.

Optimizing performance

The fund typically favours stabilized medium to large-scale operating assets that have historically produced reliable cash flows and have a reasonable maintenance history. However, it may also acquire underperforming assets at a discount. The fund’s asset manager, Skyline Energy (also led by Stein), has expertise in improving system operating plans and dispatching technicians for corrective maintenance, so that these assets can be upgraded and optimized for maximum energy generation. Skyline Energy works with technicians to facilitate 24/7 asset monitoring and performance tracking, so the team can take corrective action quickly whenever equipment fails, and power generation slows.

With Canada now being a global leader in clean energy infrastructure — and the federal government signalling through programs such as the clean energy investment tax credit that it intends to further incentivize the deployment of renewable energy capacity across the country — Stein believes the clean energy sector will continue to thrive.

“We have a strong understanding of the Canadian clean energy market, and believe Skyline Clean Energy Fund is well positioned to navigate new opportunities and federal incentives that can help our unitholders benefit from Canada’s shift toward electrification and net-zero targets,” he says.

¹ Skyline Clean Energy Fund’s annualized returns including other periods are: 9.84% 1-year, 9.45% 3-year, 9.17% 5-year, and 9.01% since inception on May 3, 2018. All of Skyline Clean Energy Fund’s numbers are as at July 1, 2023.