APG Asset Management (APG) intends to make a splash in hydropower by forming an investment partnership with Germany’s Aquila Capital (Aquila).
The Dutch pension has committed €250 million to a vehicle that will target investments in operational plants and greenfield projects across Europe. Aquila’s part of the bargain will be to look after the assets’ operational management and provide portfolio management services.
Both firms, which intend to top up the equity pledged by APG by raising debt financing, aim to make investments worth a total enterprise value of up to €500 million.
Hydropower is billed as the most efficient of all major sources of energy, with an efficiency ratio (the amount of energy produced by unit of energy input) of up to 95 percent against wind’s 50 percent and solar’s 20 percent. Accounting for more than 60 percent of the world’s electricity production, according to Bloomberg Energy Finance, it is the second-largest source of renewable energy behind wind (at 22 percent).
“Hydropower plants are already economically self-sufficient and largely independent of subsidies. Further advantages lie in the high and stable predictability of the returns,” Stuart MacDonald, a managing director at Aquila, recently told Infrastructure Investor.
Aquila reckons the potential for greenfield in Western Europe is mostly exhausted, but observes that opportunities for brownfield acquisitions, as a result of state-owned companies and utilities divesting non-core assets, could be rife in years to come. Scandinavia and Eastern Europe are seen as probable hot spots, while Turkey could soon provide a flourishing deal pipeline for new projects.
“Hydropower is an attractive proposition for investors looking for stable long-term inflation protected yields to match pension liabilities. The key challenge in accessing these types of assets is the ability to bundle enough volume in transactions to create sufficient scale to appeal to institutional investors,” noted Oldrik Verloop, responsible for the partnership at Aquila.
The deal marks a busy couple of weeks for APG, which last week sealed a €237 million investment in Latin American power business Celeo Redes. The transaction will see the pension fund manager and Spain’s Elecnor, Celeo Redes’ parent group, jointly invest €372 million over the next five years in the development of transmission projects.