According to Peter Dickson, a partner at the London-based manager, the firm’s exit ensures the realisation of the €437 million Clean Energy Fund I. The vehicle – raised at BNP Paribas before Glennmont’s spin-out in 2013 – was the largest of its kind in Europe when it was launched in 2008, within five days of the collapse of Lehman Brothers.
“We were born from crisis,” he recalled, as a new crisis engulfs the world. “We have found opportunity in crisis in the past. Funds like ourselves can thrive. The clean energy sector is particularly resilient.”
About 60 to 70 percent of the fund’s investors originated from Europe, with the remainder coming from Asia and the Middle East. Dickson believes LPs viewed the fund as a rare stable strategy at the time.
“During that time, institutional investors were desperately looking for somewhere to invest their money and we offered them what became a very robust safe haven for investment,” he explained. “It was asset-backed investments, we had feed-in tariffs pretty much universally, so there was no pricing risk, revenues were secure into the long term and the technologies we were investing in were proven ones.”
The fact that Glennmont was pitching to investors in uncertain times about 2020 decarbonisation targets also helped to promote its long-term approach, Dickson added. He declined to state specific returns, other than to say that the exit demonstrated a “strong track record”.
One risk to materialise in the sector in the years following the financial crash and Glennmont’s inaugural fundraise was the political risk ingrained in the subsidy systems that propelled the growth of the industry itself. Glennmont was not present in Spain, where retroactive measures from the government had the biggest effect. However, it did have a significant presence in Italy, which endured such experiences to a lesser extent.
In the UK, cuts to the subsidy system mean the 2.0 Renewables Obligation Certificate that supports the Sleaford plant for the next 15 years will be an increasingly rare opportunity.
“We remained diversified. We spread our investments fairly broadly,” said Dickson. “As we were diversified, no one fluctuation of the market was overly detrimental to us.”
The most significant diversification since CEF I has been the addition of offshore wind to its portfolio, with the group taking a 25 percent stake in the Gode Wind 1 offshore wind farm in Germany from Global Infrastructure Partners. The deal was done through its €850 million CEF III, which was raised last year and Dickson is firm in his belief that many of the values that attracted the initial investors in 2008 remain today.
“Now every institution has renewables in their portfolios,” he said. “Back then, probably the majority of institutions had infrastructure allocations and we used to compete for slices of the infrastructure budget, and now renewables have an allocation to themselves. It’s asset-backed, long-term and meets many ESG targets.”
The next 12 years?
Although the short- to medium-term outlook is uncertain for all, the clean energy sector by and large still looks set to thrive. However, while the opportunity set for CEF I was limited to Europe, Glennmont has not ruled out expanding its horizons.
“The rest of the world has matured at least to the level of where Western Europe was in 2008,” Dickson explained. “We’ve got to take a broader view of the world. There’s a lot of opportunity in Asia, there’s a growing opportunity set in various states in the US. We’ve seen a lot of people doing very well in Africa and Latin America at various times. There’s a lot more going on around the world now than there was 12 years ago.”
He also pointed to the power purchase agreement market, which has effectively replaced the secure revenues granted by subsidies, while lenders have also become more comfortable with the asset class than they were in 2008.
“They’re more comfortable with an element of merchant risk, when before that wasn’t possible,” said Dickson. “They are much more broad-minded and understand the values of the sector.”