China Merchants Capital launches renewables platform targeting up to $1bn

CMC CIO Simon Chen described climate change as a ‘mega-trend’ that it could not afford to miss, with the new platform to offer exposure to Chinese renewables for international investors.

China Merchants Capital has formed a strategic partnership with Chinese state-owned power company SPIC Guangdong Electricity Co to build out a renewable energy generation platform, with hopes of raising up to $1 billion.

The firms will collaborate on the development and installation of renewable energy assets,  including utility-scale solar, distributed solar and onshore and offshore wind power. They will also co-operate on exploring other technologies and asset types like hydrogen, natural gas and smart energy, as well as private equity and venture capital investment in the “new energy industry value chain”, according to a statement.

Ricky Zhang, who joined CMC as real assets managing director in 2021, told Infrastructure Investor that renewable energy was a “key strategic investment direction” for the GP.

“SPIC Guangdong was looking for someone to join hands with and establish an industrial investment platform in renewable energy,” said Zhang. “We will be their fundraising channel to help them access a broader source of funds and long-term capital to achieve a sizeable installation target for renewable energy in the years to come.”

CMC is targeting up to $1 billion for the platform, to be raised from a mixture of international and domestic investors.

The platform will be seeded by SPIC with several solar and wind projects across five provinces in China, with a total installed capacity of more than 3GW. SPIC will be responsible for the development, construction and operation of the assets, with CMC overseeing investment and financing.

Big tickets wanted

CMC said the fundraising would be able to accommodate “pretty big” ticket sizes from investors, presenting an opportunity for international investors to gain meaningful exposure to this sector in China.

“International investors and domestic clients have always been interested in the sector, but the dynamics have been changing,” Zhang said.

“Traditionally, we relied on subsidies from the government for the projects to make financial sense, but the subsidies have gradually been phased out in the last few years. With installation costs dropping, we are now talking about grid parity projects that don’t rely on subsidies [and have] more income certainty. On completion of a project, you can sell the electricity based on a standard feed-in tariff to the grid company under a long-term power-purchase agreement. Or sell to the end-user via a newly launched green power trading system, at a potentially higher tariff.

“Both international and domestic funds are reassessing the opportunities now, without subsidies and with more certainty. There are a number of offshore investors making investments into China’s renewables space – interest has been picking up.”

CMC chief investment officer Simon Chen also told Infrastructure Investor the firm has already been approached by multinational companies with a large footprint in China to try and partner more on renewable energy and other initiatives to reduce carbon emissions.

“Climate change and decarbonisation is a mega-trend that we cannot afford to miss,” said Chen. “It’s our number one priority right now, both through our real assets team, led by Ricky, and our private equity team. We’re very close to launching a private equity fund focused on climate change as well, to show how serious we are in this space.

“We’ve invested more than $1 billion in climate change-related assets and renewable energy. The returns have been quite good and we’re proud of that track record.”

SPIC Group was established in 2015 from a merger between the former China Electric Power Investment Company and National Nuclear Power Technology Co, and is one of China’s five major power generators. Its total installed power capacity is more than 190GW, of which renewable energy accounts for more than 100GW. SPIC Guangdong oversees the management and development of the group’s investments in China’s Greater Bay Area and overseas.