Public markets: a viable alternative?
Renewable energy has had a rough ride in the public markets over recent years.
We have seen many manufacturers falter after hitting early heights, and the renewables spin-offs from big utilities have had mixed fortunes. There are some continuing success stories, such as Brookfield Renewable Energy Partners, listed on the Toronto stock exchange, but the ink has been predominantly red for a while.
This year, we have witnessed a run of successful initial public offerings (IPOs) of renewables funds on the London Stock Exchange (LSE), with Greencoat UK Wind, Bluefield and The Renewables Infrastructure Group (Trig) raising more than $1bn in aggregate.
Several similar IPOs with a focus on renewables assets have been announced — for example, Foresight — and others are in the wings. The brokers with successful track records include Royal Bank of Canada, Barclays, Numis, Canaccord Genuity and Jeffries, with other major houses having current mandates.
The success of these IPOs in London cannot be attributed only to a new attraction for renewables assets among traditional investors. They have built on the success of the listed social infrastructure funds, such as HICL Infrastructure, International Public Partnerships and John Laing Infrastructure Fund.
The combined market capitalisation of the listed social infra funds on the LSE is now north of £5bn ($7.88bn). InfraRed Capital Partners, the manager of HICL, also manages Trig.
The listed infrastructure funds remain dwarfed by the many unlisted infrastructure funds. Likewise, the listed renewables funds are today smaller than the specialist unlisted funds such as the latest HgCapital renewables fund, which raised €542m ($718m) in late 2011.
The common feature of the three funds raised this year is that they are all focused on renewable assets, but they do not represent the same investment proposition.
Greencoat acquired unleveraged operational UK wind assets from SSE and RWE, and a key feature is its investment in the 90MW Rhyl Flats offshore wind farm. The Green Investment Bank took a critical cornerstone stake in the fund.
Bluefield raised £130m to fund the acquisition of UK solar arrays and has recently completed the first purchases from third parties.
Trig acquired a seed portfolio of onshore wind and solar assets from InfraRed and RES, the leading UK independent developer. All of the assets had existing project finance debt at the asset level.
Greencoat and Bluefield were focused solely on UK assets, but Trig incorporated French and Irish wind and solar assets, and the investment parameters include other European markets.
For investors, fund managers and brokers, this is not just a simple story of yield. As the social infra listed market has shown, ample opportunities exist for the funds to grow through subsequent acquisitions and equity issuances.
And so to our predictions for the nascent renewable-energy listed-fund sector.
- Greencoat, Bluefield and Trig will grow significantly, but will not corner the market.
- Traditional private-equity fund managers will jump across and launch renewables listed funds.
- The spread of technology type will widen to include biomass, landfill gas and hydro.
- LSE-listed funds will own assets in a wider range of countries as investors seek diversification, and new managers and promoters make their portfolios available.
- Utilities and developers will use the listed funds to help recycle capital. A marriage between a developer and a listed fund could work well, as projects rolling out of the pipeline can be acquired by the fund through regular tap equity issues and hunting facilities.
- The brave investor and manager will start to venture back to markets such as Italy, where many gigawatts of operational solar assets are widely held, presenting acquisition opportunities for well-structured vehicles — albeit with the perceived regulatory and political risk.
- Funds and other vehicles will list in other markets. TransAlta Renewables recently launched successfully in Canada, and we expect to see similar products listed on other exchanges with the right investor appetite and domestic renewables assets.
We can offer no guarantee that the wind will blow or the sun will shine, but whatever happens with the weather, we are confident that the renewables listed fund sector will continue to prosper. For many sponsors, developers and fund managers, the public markets are once again a viable alternative.
Simon Currie is global head of energy at international law practice Norton Rose Fulbright
This piece was published as part of the Thought Leaders series. Recharge’s Thought Leaders’ Club brings together leading thinkers and participants from the renewable-energy sector to examine the key challenges facing our industry