Energy transition infrastructure and the DC allocation inflection point
As UK pension schemes pivot toward private markets, the structural shift into energy transition infrastructure is transforming from a peripheral ESG goal into a core strategic driver of long-term risk-adjusted returns.
Autheurs
UK defined contribution (DC) pension schemes are already well advanced in shifting their investment focus, in part responding to the drive from the Government to put more capital to work in private markets and the UK growth economy.
Notably, our research among DC investors suggests that private markets more broadly, and UK infrastructure in particular, are shifting from a peripheral allocation to a strategic priority – and that this reflects not only a response to the broader policy agenda, but also where return opportunities can be found in the current market.
Specifically, 40% of respondents noted that at their most recent review they had increased, or considered increasing, exposure to UK infrastructure – making this the second most popular asset class for increased investment, behind only private equity (53%).
Moreover, infrastructure ranked as the most popular asset class for sourcing the “best investment opportunities” in the UK, selected by 58% of respondents. Meanwhile, renewable infrastructure specifically was by far the most popular asset class for sourcing the “most attractive net zero investment opportunities”, selected by a whopping 82%.
DC investors see attractive opportunities in UK infrastructure
Source: Schroders, Longview Networks, Defined Contribution Investment Survey 2026.
Overall, nearly three-quarters expect to increase private market allocations within growth phase strategies, while almost six in 10 anticipate doing so for retirement phase portfolios. More than half of respondents said that the main reason for doing so is a focus on risk-adjusted returns.
- Read more: DC Investment Survey 2026
For an industry often characterised as cautious and cost-driven, those figures signal something more fundamental than incremental adjustment. They suggest an inflection point.
Differentiation and deployment
Private market allocations in DC were once constrained by fee sensitivity, operational barriers and liquidity concerns. Those barriers have not disappeared, but they have diminished.
The development of Long-Term Asset Fund (LTAF) structures has provided an operational framework capable of allowing default strategies to hold underlying illiquid assets even as asset allocations react as membership profiles evolve. Indeed, nearly 70% of surveyed schemes expect to use LTAFs for future private market exposure.
At the same time, consolidation has increased scheme scale. Larger master trusts and consolidated arrangements can absorb illiquidity more comfortably, negotiate specialist mandates and manage liquidity buffers more effectively. Policy initiatives, including the Mansion House commitments and the emerging Value for Money framework, have reinforced the shift.
But the survey findings suggest schemes are responding as much to investment logic as political encouragement.
Trustees are seeking diversification, resilience and improved long-term member outcomes in a macro environment that looks materially different (and more geo-politically volatile) versus the 2010s.
In that context, the appeal of assets with differentiated economic drivers has strengthened – and this is where the value of infrastructure, and specifically energy transition infrastructure, as a source of inflation-aware, real economy exposure that is powered by distinct risk premia and return potential, is becoming more attractive to DC decision makers looking to deliver real protection and diversification for their members.
At the same time, the opportunity set is large – and growing. Over the past decade, energy transition assets – including traditional wind and solar power generation, as well as emerging areas such as battery storage and related grid-supporting infrastructure - have become the dominant area of new investment within infrastructure, accounting for more than half of new investment across the asset class globally.
Meanwhile, government net zero goals are creating a huge investment need that will require significant private capital allocations to fill. The UK government estimates that investment of £40 billion on average per year between 2025-2030 is required to meet its ambitions.
Number of infrastructure deals by sector and energy sector share (%)
Source: Schroders Greencoat analysis of Preqin data, 2025. Assumed renewable share applies the percentage of renewable energy as a share of over deal volumes from the Preqin Global Infrastructure Report 2025 to wider infrastructure deal volumes, as of Q3 2025. For 2025, the percentage of renewable energy deals in 2024, the latest figure available, was applied.
Growth and income opportunities
Our survey evidence reveals that schemes see private markets as relevant to both ends of the lifecycle. Seventy-four per cent expect to increase private market allocations for growth phase strategies, while 59% expect to do so for retirement phase portfolios.
Operational energy transition infrastructure can sit comfortably across both.
For DC schemes looking to balance liquidity needs, the yield-based nature of returns on operational renewables assets is extremely valuable – as we outlined in our previous white paper.
The yield means that energy transition infrastructure is also relevant for members approaching retirement. Operational assets can deliver visible cashflows, often underpinned by contractual or regulated frameworks. Revenues in parts of the sector exhibit inflation linkage or power-price sensitivity, characteristics that may support real income stability as spending patterns evolve over a retirement period.
Meanwhile, for growth phase members, renewable assets provide exposure to expanding power demand and system transformation. The voracious need for new investment has contributed to a buyers’ market that led to a re-rating of returns and attractive entry points.
The chart below shows how the expected returns from a portfolio of levered wind assets in the UK are at the highest level since the inception of the portfolio; while this is just one sector in one geography, the broad shape of this graph is broadly consistent across the whole market. We will cover this in detail in the coming sections.
Core infrastructure returns have materially re-rated
Past performance is not a guide to future performance. Source: Listed Greencoat fund quarterly reports Q1 2015- Q1 2025. Discount rate refers to UK wind assets. There is no guarantee that this rate trajectory will remain the same in the foreseeable future.
The diversification case
Diversification is not an abstract concept for DC schemes; it is a practical requirement. The experience of recent years has demonstrated that equity and bond markets can move in tandem under inflationary stress.
Energy transition infrastructure differs structurally from listed markets – and even other private markets and diversified infrastructure strategies. Cashflows derive from physical generation and contracted revenues. Performance drivers include power market dynamics, inflation, regulatory frameworks and of course the weather.
Intuitively, the risks associated with energy transition infrastructure are highly diversifying, exposing investors to a unique mix of risk premia compared to non-energy infrastructure sub-sectors and other asset classes.
- Inflation Risk: Returns are typically linked to inflation, helping to maintain the real purchasing power of a portfolio.
- Positive Power Price Risk: Energy transition assets benefit from increases in electricity prices, while for other asset classes and non-energy infrastructure these are a major cost input.
- Resource/Weather Risk: Few other parts of a portfolio are as meaningfully impacted, positively or negatively, by meteorological factors as renewables assets.
- Technology Risk: Each renewable technology and asset, whether it is a solar park or a wind farm, carries specific risks – and so diversification opportunities.
- Geography/Policy Risk: Policy and regulation supporting the energy transition are rapidly developing in most regions around the world, providing a favourable investment climate.
This does not make the sector immune to volatility, but it does mean its return drivers are not aligned with global equity beta or sovereign bond yields; those areas where DC members are historically most exposed to. As an extreme example, in 2022 when energy prices spiked, equities and bonds both fell and even private market returns were generally in single digits, energy transition infrastructure return close to 23%.
The UK allocation debate
Despite strong appetite for private markets, DC schemes remain measured in their expectations of UK exposure. Two-thirds of respondents expect less than 25% of their private market allocation to be invested domestically, while 68% cite a lack of suitable opportunities as a primary barrier.
These figures reveal a clear tension. On one hand, policy frameworks encourage domestic productive investment; on the other, trustees remain cautious about concentration and opportunity depth.
In the context of infrastructure, there is a much clearer focus on UK opportunities in the survey results – and we see a significant divergence in the depth and breadth of the opportunity set for both broader infrastructure and energy transition infrastructure specifically.
In relation to "core" UK infrastructure, we have seen sustained institutional demand in recent years for example in areas such as digital infrastructure, which has led to significant valuation compression and questions about entry pricing.
On the other hand, energy transition infrastructure operates within a different structural context. As noted earlier, there are specific dynamics that are driving an especially deep opportunity set, and that have driven an upward re-rating of returns across the sector supported by highly attractive entry points.
UK energy transition investment opportunity
Source: Aurora Energy Research, DUKES, Schroders Greencoat estimates, July 2024.
In short, the asset base is not fixed. Renewable generation, storage, and grid enhancement projects continue to expand in response to decarbonisation targets and power demand growth.
In markets where supply grows alongside demand, capital flows do not automatically create valuation bubbles. Instead, pricing discipline is maintained by capital recycling.
This applies to operational assets. Developers frequently sell down operational, de-risked assets to recycle capital and fund construction pipelines, creating a continuous flow of investable projects. For investors with sector expertise, this offers access to assets at pricing reflective of risk rather than scarcity.
New trends; new opportunities
This shift is further underpinned by the UK’s growing climate and energy security goals. By 2026, the national mission for Clean Power 2030 has moved from political ambition to a high-velocity execution phase.
The message is clear – meeting “Net Zero” targets is no longer just a target but is a strategic imperative for national energy independence. Ultimately, such a policy environment is favorable for DC schemes.
Firstly, government initiatives such as the Contracts for Difference (CfD) and the move toward CPI-linked indexation for renewable subsidies, provide the long-term, inflation-protected cashflows that match pension liabilities.
In addition, the 2026 planning reforms have begun to unblock the “gridlock” in infrastructure approvals – especially related to new, clean power. This means that the duration between capital commitment and operational yield is shortened.
The survey data indicates that renewable infrastructure already stands apart in trustee perception. Our survey shows that there is clear conviction that the structural drivers behind energy transition are sufficiently compelling to merit focused exposure.
A conscious, targeted allocation to energy transition infrastructure may offer more differentiated return drivers than a broadly diversified infrastructure sleeve whose components share similar economic sensitivities.
That said, concentration introduces its own considerations around sector risk and policy exposure. The appropriate balance will depend on scheme objectives, governance capacity and risk appetite.
What is increasingly clear is that energy transition is not a peripheral theme within infrastructure. It is becoming central to its future development.
Inflection and recalibration
The DC market is already recalibrating. Private markets are moving from discussion to deployment. Infrastructure is gaining prominence. Renewable assets are viewed as particularly attractive.
The broader macro context reinforces the case. Inflation uncertainty, geopolitical volatility, energy system transformation and changing correlation dynamics have altered the investment landscape. For DC schemes, the challenge is not whether to respond to these shifts, but how to do so deliberately.
Operational energy transition infrastructure offers a combination of return potential, income visibility and differentiated economic exposure that aligns with both lifecycle design and long-term member outcomes. If infrastructure is returning to the centre of pension portfolio construction, the data suggests energy transition infrastructure is defining what that centre looks like.
The allocation inflection point is already visible. The strategic decisions that follow will determine whether DC schemes capture its potential.
Subscribe to our Insights
Visit our preference center, where you can choose which Schroders Insights you would like to receive.
Autheurs
Topics