CalPERS acquires stake in Desert Sunlight

The US public pension fund will be making the acquisition through Gulf Power Pacific, a Harbert-managed vehicle backed by CalPERS.

The California Public Employees’ Retirement System (CalPERS) has agreed to acquire up to 25 percent of Desert Sunlight Investment Holdings, owner of a 550MWac solar photovoltaic power station near Palm Springs, California.

The $290 billion pension fund, the largest in the US, will be making the acquisition through Gulf Power Pacific (GPP), an unlisted infrastructure vehicle launched by alternative asset management firm Harbert Management Corporation (HMC) in 2013, with CalPERS initially investing $582 million. In 2014, the California pension fund committed an additional $291 million, accounting for $873 million of the $900 million total. GPP's mandate is to invest in North American power assets. 

CalPERS will acquire its stake in Desert Sunlight from Sumitomo Corporation of America, a wholly-owned subsidiary of the Japanese conglomerate. However, the exact size of the ownership interest will be decided “at closing later this month,” a spokesperson for the pension fund told Infrastructure Investor, but declined to comment on the acquisition price. Sumitomo invested in the project in October 2012, acquiring a 25 percent stake from GE Energy Financial Services, which had acquired 50 percent of the project from First Solar, the project’s developer, in September 2011. Affiliates of NextEra Energy Resources own the remaining 50 percent.

The investment is in line with CalPERS’ previously-announced decision that it would seek to increase its exposure to the infrastructure sector primarily through separate accounts because of the better economic terms and governance these structures typically offer.

While CalPERS’ long-term allocation target for infrastructure is 2 percent, over the past two years the pension fund has adopted a lower interim target of 1 percent citing low interest rates and increased competition that have driven up valuations. The current target is in effect through April this year.

Two facilities comprise the Desert Sunlight Solar Farm, which First Solar, a solar equipment manufacturer based in Tempe, Arizona, continues to operate and maintain. The two facilities began commercial operations in late 2014, with all of their output being sold to Pacific Gas & Electric and Southern California Edison under long-term power purchase agreements.

At the time of development, First Solar had said that Desert Sunlight would help California meet its target of generating 33 percent of its power from renewable sources by 2020. The solar power station generates enough clean energy to power approximately 160,000 homes while displacing 300,000 metric tons of greenhouse gas emissions per year.

According to Harbert, Desert Sunlight is the third investment for GPP to date. Earlier acquisitions include Northern Star Generation, a portfolio of seven electric generation facilities with a combined net capacity of 1,251MW; and Astoria Energy II, a 575MW combined cycle power plant in New York City.

“Desert Sunlight presents a great opportunity for CalPERS, allowing us to invest both in California and in clean, renewable energy,” the pension fund’s chief investment officer, Ted Eliopoulos, said in a statement. “Infrastructure has been one of our best performing programmes and is an important part of the CalPERS portfolio,” he said.

CalPERS has also invested in Harbert Power Fund V, a $485 million fund, which has a similar strategy to GPP, but which targets deals that require smaller equity investments.

As of January 31, the net asset value of CalPERS’ infrastructure portfolio totaled approximately $2.3 billion, representing 0.8 percent of the pension fund.