German asset manager Aquila Capital is preparing to launch a new energy efficiency fund after securing its first deal in the sector.
Aquila announced this week the launch of its energy efficiency strategy, targeting small and medium-sized projects in Europe, with its first investment in Italy, where Aquila will replace and operate a streetlighting portfolio, gaining returns from the 60-70 percent cost savings from the new technology.
Aquila is set to invest between €50 million and €70 million over the next two to three years in this sector, Franco Hauri, senior investment manager for the strategy, told Infrastructure Investor. He said the firm was in the process of launching a fund, although Aquila had not yet decided whether this will be open or close-ended and this “depends on the appetite of the investors”. Aquila has financed the first project off balance sheet.
“There is keen interest from investors in such projects. Energy efficiency is an emerging niche asset class,” Hauri added. “Sometimes it’s good to not be the first mover. There have been others out there educating the investor base and that’s an activity we will continue.”
As well as streetlighting projects, which Hauri said typically have contract lengths of about five years, he said Aquila “sees significant traction for industrial cogeneration plants” and maximising consumption from commercial-scale rooftop solar assets. The latter projects have contracts of about 12 years, according to Hauri, who said Aquila will be looking for “classic infrastructure-type” returns.
“The complexity compared with other infrastructure strategies means it is typically more fragmented,” Hauri explained. “Typical sizes of energy efficiency projects range from €100,000 to €3 million. While solar or wind are projects which have been developed as a core business, energy efficiency is always an add-on and which is not core.”
While the energy efficiency sector is still considered niche for investors, momentum has been growing in the space with Swiss firm SUSI Partners closing its second energy efficiency fund on €289 million in May, while in 2018 Sustainable Development Capital launched the Energy Efficiency Income Trust on the London Stock Exchange.