Thames Water thirsty for higher returns
Thames Water has submitted its plans for the 2025-30 regulatory period with a clear message to Ofwat: allow Thames’ shareholders to earn a higher return or forget about financeability.
Noting that “no provider of financial capital is forced to invest in the privatised England & Wales water industry”, Thames said the regulator needs to consider “a material move up in the allowed rate of return”. Namely, a bump to 7.8 percent, up from the 6.5 percent Ofwat is mulling.
“If investors can lock in returns of 4.5 percent by buying gilts and up to 6.3 percent by buying investment grade bonds, it is highly unlikely that they could be persuaded to take on the extra risk involved in equity investment in exchange for a return of just 6.5 percent,” Thames wrote in its plan.
Makes you wonder who would want to invest in UK water these days…
At risk is the £2.5 billion in equity promised by Thames’ shareholders for the next regulatory period. That pledge helped calm the waters this summer, when talk of temporary nationalisation (subscription required) swirled around the embattled utility.
Does that mean it’ll soon be back on the agenda? Your move Ofwat.
Tax credit transferability is risky business
At last week’s Infocast Clean Energy Investment Summit, held in Texas, Hans Royal, senior director of renewables and cleantech at Schneider Electric, noted the budding tax equity transfer market post-IRA is attracting new buyers who are exacerbating renewables merchant risk exposure.
“Some corporate investors would like some RECs as part of these [tax equity] transactions… [saying] ‘It helps us towards our decarbonisation goals’ – that really can help get an approval across the finish line,” Royal explained.
While green assets underpin tax equity transfers, tax credits don’t count towards buyers’ net zero goals, unless they were somehow directly consuming the green energy from a project. Hence why renewable energy credits – and wholesale market exposure – come into the picture.
Another risk discussed later in the day was lack of due diligence.
“I was shocked in a couple of deals,” remarked Izzet Bensusan, founder of Captona. According to Bensusan, transferability has created an ecosystem where tax credit buyers are removed from the operations of the projects they’re investing in, posing a unique challenge.
The trade-off? More projects may be financed faster – and that might be worth it.
Tipping the scales towards scaling up
Four to five years ago, most infrastructure investors wouldn’t have counted scale-up risk among the major threats to their portfolios – at least, that’s what Vikram Dhawan, a director at EQT Partners’ value-add infrastructure vertical, claimed during a later panel at Infocast’s Clean Energy Investment Summit.
He also said that’s changing.
“Now, people are launching energy transition funds or infra growth funds,” he mused during a later panel. “And all of those have the purpose of unlocking capital that is willing to take on that scale operation.”
He noted that as more and more clean technologies are becoming proven, it is up to infrastructure investors to provide them with a proven business model to boot.
“We really need capital and concerted focus on… the commercialisation of those technologies. And I think that’s where both equity and credit investors who are taking that step beyond just the traditional view [of infrastructure] can really help,” he said.
Grapevine
“September was, in my professional opinion as a climate scientist, absolutely gobsmackingly bananas”
Zeke Hausfather, at the Berkeley Earth climate data project, after this September was 1.8C warmer than pre-industrial levels
Who’s hiring
AEW Europe eyes infra with BlackRock hire
Jonathan Stevens, BlackRock’s former head of infrastructure debt for Europe, has taken on the newly created role of head of private debt at real estate asset manager AEW Europe, helping to oversee the latter’s expansion into infrastructure debt for the first time.
Stevens had been with BlackRock since 2013 and was also CIO for its global debt business. He will be based in London with AEW, reporting to the firm’s European CEO, Rob Wilkinson, and sitting on its European executive committee.
In a statement, the firm said Stevens would be responsible for shaping the strategic direction and growth of AEW’s private debt platform, including the creation of new products in the infrastructure asset class.
At the same time, AEW Europe announced the acquisition of the existing private debt business of real estate firm Natixis Investment Managers International, with a team of 21 staff from Natixis including CIO Denis Prouteau also coming across.
Wren House bulks up NY team
Wren House Infrastructure, the infrastructure arm of the Kuwait Investment Authority, is adding to its nascent New York team with the hiring of Anne McEntee as a managing director on its asset management team.
McEntee is a General Electric veteran, having spent 25 years at the firm including as CEO of digital services and onshore wind within GE Renewables Energy. She joins Martin Torres, who was previously BlackRock’s head of the Americas for its global climate infrastructure equity business. Torres was appointed to lead Wren House’s New York office late last year, its first outside London.
Wren House has been growing its US portfolio steadily since the 2020 acquisition of i3 Broadband, its first deal in the country. Since then, it has added Direct ChassisLink, Phoenix Tower International, and most recently, SeaCube Container Leasing to the list.
“Leveraging full-time experienced C-suite executives throughout the investment and asset management cycle is a defining element of our risk management and value creation practice,” commented Wren House CEO Philippe Busslinger.
Sweet spot addition, then.
LP watch
The three Ds driving allocations
Decarbonisation, demographics and deglobalisation are driving investors’ allocation decisions as well as directing capital towards infrastructure.
Forty-six percent of the 770 investors – spread across 36 regions and managing a total of $34.7 trillion in assets – surveyed by Schroders for its 2023 institutional investor study, viewed infrastructure/renewables as presenting “the best decarbonisation or energy investment opportunities over the next two to three years”.
As a result, 41 percent expect to increase their allocation to the asset class in the next 12 months.
Infrastructure was also the asset class best placed to meet investors’ sustainability and impact objectives according to 44 percent of respondents, while natural capital and biodiversity was identified as a close second by 41 percent of those surveyed. Those percentages climb higher when the investment timeframe is extended to two years.
Those same three trends are also contributing to geopolitical uncertainty and higher inflation – the two key concerns 55 percent and 53 percent of respondents, respectively, identified as expected to have the most impact on their portfolio performance in the next 12 months. Tapering monetary policy came in third, with 48 percent concerned it will negatively affect performance.
Deals
Brookfield Banks on UK renewables
The renewables division of northern England-based Banks Group has been sold to Brookfield Asset Management for an enterprise value of almost $1 billion, according to sources.
The acquisition of the independent onshore wind owner/operator nets Brookfield a portfolio of 11 onshore wind farms across the north of the UK, as well as an almost operational farm in South Lanarkshire
The acquisition of Banks Renewables is the first deal in the Brookfield Global Transition Fund II, which launched in May 2023 and is targeting around $20 billion.
The deal will significantly increase Brookfield’s UK’s onshore wind industry footprint and was announced only a month after the UK government decided to lift what was effectively a ban on new onshore wind developments.
The Banks Renewables platform currently owns and operates 282MW of renewable energy capacity and has planning permission for another 307MW, including two solar farms and a battery storage facility.
Toronto-headquartered Brookfield’s other UK energy investments include a battery developer, a gas network and two Welsh pumped storage plants.
Partners Group to inject up to €1bn in Exus
Continuing with renewables, Partners Group has signed up to provide up to €1 billion of growth capital to Exus, an international infrastructure asset management and development company, alongside founders and management, affiliate title PE Hub Europe reported.
Exus provides third-party asset management and project development services for owners of utility-scale solar, wind and battery storage projects in Europe and North America. It manages more than 11GW of renewable energy assets and has developed 2.4GW of assets in both geographies.
Exus is “uniquely positioned to pursue a capital-efficient model for building assets using its existing business and network”, said Todd Bright, partner, co-head private infrastructure Americas, Partners Group. “We aim to scale the company’s origination capacity for new projects to over 1GW per annum and look forward to working with the management team.”
Partners Group will work with management to grow the business in a variety of ways, including portfolio investment opportunities, hires and growing the project pipeline through acquisitions, according to a release.