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Investing in renewable energy: all you need to know about building a diverse portfolio

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In this insight, we explore the various renewable energy technologies, the importance of diversification in maximising energy output and providing stable returns, and why supporting the underlying electricity infrastructure is crucial in achieving the government’s net zero goals.

Key takeaways
  1. Harnessing renewable energy: solar, wind and hydro
  1. Grid stability – supporting essential infrastructure
  1. The power of diversifying energy outputs
  1. Downing's approach to investing in renewable energy

The International Energy Agency stated renewable energy sources made up 26% of the world's energy consumption in 2020 and this figure must rise to about two-thirds by 2050 if we are to curb rising temperatures and deliver on net zero.

Various renewable energy technologies are being rolled out worldwide, but this requires significant government support and private investment.

According to the latest investment data reported by Bloomberg, global new investment in renewable energy has surpassed $350 billion in the first half of 2023, making a 22% jump compared to the period last year. This surge of investment reflects a commitment to global environmental sustainability and a recognition of its financial viability. While it is showing no signs of slowing down, to achieve the ambitious net zero target, investment will need to accelerate even further.

Creating a diversified portfolio of renewable energy assets can provide investors with attractive returns while contributing to the successful transition to a net-zero carbon economy - resulting in a cleaner, greener future. Below we provide resources to better understand various renewable energy assets and how to invest in them.

Investing in solar energy – harnessing the power of the sun

Since 1954 when the first ‘practical’ PV solar cell was developed, solar cell efficiency has made breakthroughs. Solar-cell efficiency refers to the portion of energy in the form of sunlight that can be converted via photovoltaics (PV) into electricity by the solar cell.

In 1960, where the first use of commercial solar energy was used, Hoffman Electric achieved 14% efficiency in their PV cell. Fast forward to 2020, where NREL achieved a 47% efficiency with their solar cell, showcasing the ever-evolving nature of solar cell technology.

Solar energy is a key component of the global energy mix – and our dependence on it will only grow as its efficiency improves, not to mention the necessity to move away from fossil fuels.  

With advancements in solar-cell efficiency, solar power is becoming an increasingly cost-effective and reliable energy source. Its role in the energy mix is set to expand, making it a compelling option for investors.

Find out more in our following insight, where we examine the evolution of solar power, its role in the global energy transition, and discuss why the technology should form a meaningful component of any diversified investment portfolio.

Understand the importance of solar in the renewable energy transition.

Investing in wind energy – blowing in the right direction

Wind power is now crucial to our future renewable energy mix. It’s estimated that onshore and offshore wind will generate more than one-third (35%) of total electricity needs, becoming the prominent generation source by 2050.

However, in 2022, the wind investment in Europe was the lowest it's been since 2009, a stark reminder to policy makers and governments who need to restore investor confidence. The REPowerEU agenda now wants the EU to expand its wind capacity from 190 GW today to 480 GW by 2030. This means building 35 GW of new wind turbines a year until 2030 to meet Europe’s 2030 climate and energy security targets.  

Wind power's potential to generate over a third of total worldwide electricity by 2050 positions it as a key player in the renewable sector. Despite recent investment dips, the long-term outlook remains strong, offering opportunities for investors.

In our insight, a 101 on wind power technology, we review the evolution of wind power, explore its role in the global energy transition, and discuss why investing in wind technology should form a growing part of a diversified portfolio.

Uncover the importance of wind in the renewable energy transition.

Investing in hydro energy – flowing forward

Hydropower is one of the oldest and most widely used clean energy sources, accounting for more than 60% of the world’s renewable generation. Furthermore, if the world is to decarbonise and meet the climate goals set in the Paris Agreement, hydropower must more than double by 2050. In this article, we analyse the evolution of hydro power, its role in the global transition towards cleaner energy, and discuss why investing in hydropower should form a growing part of a diversified investment portfolio.

Learn more about the importance of hydropower in the renewable energy transition.

Grid stability – supporting essential infrastructure

Wind farms, hydro plants and solar farms are vital aspects of the renewable energy mix, however these technologies need to harmoniously co-exist with the national infrastructure that distributes the power. Little is usually spoken about the vital infrastructure that enables the stability of the electricity grid, and the investment opportunity this segment of the energy infrastructure sector offers.  

As well as investing in assets that generate energy, it’s important to invest right across the energy infrastructure sector including assets that help to store, moderate and distribute that energy.

Infrastructure investments could offer a stable return profile and are key to the efficient distribution and storage of renewable energy. This sector presents an opportunity for investors to contribute to the resilience of energy systems while tapping into a steady income stream.

Understand the importance of investing in the core electrical grid infrastructure.

The power of a diverse portfolio

As the investment communities’ understanding of renewables has evolved, so has our emphasis on diversification of renewable energy sources.     

Renewable energy technologies such as wind, solar and hydropower are seasonal and intermittent. By combining investments in multiple asset classes and geographies - as demonstrated in the below graph - you reduce the reliance on any single technology, any given natural resource and particular weather patterns.  

Data source: Generation graph as at 30 June 2023, actual generation (2012 – 2022 for hydro and wind, 2016 – 2022 for solar) from Downing Renewables & Infrastructure Trust plc

Learn more about the benefits of having a diverse renewable energy portfolio.  

Downing’s approach

By diversifying across multiple renewable energy technologies, we aim to aid the government's net zero carbon ambitions, generate positive environmental and social impacts for communities, and provide an opportunity for stable returns for investors. Investing in renewables reflects our belief that the transition to clean energy is crucial and can present attractive growth opportunities.

Find out more about how Downing has allocated its investments in renewable energy.


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