Electra spin-out launches environmental infrastructure fund

London-based smaller companies investor Acuity looks to raise £100m for a vehicle predicated on local authorities having to meet government targets on organic waste recycling.

Acuity Capital Management, the London-based smaller companies specialist, is launching a fund to invest in environmental infrastructure projects focusing on organic waste recycling in the UK.

The Acuity Environmental Infrastructure Fund aims to raise an initial £100 million (€112 million; $167 million) of equity to invest in 8-12 sites, with each site backed by at least a 10-year contract with a local authority or a company establishing a fixed volume of waste at a set price, said the firm in a statement. 

The launch comes amid demanding organic waste recycling targets set by the British government for local authorities. Acuity explained how the government has prioritised anaerobic digestion as a key technology to help meet targets. Anaerobic digestion is a biological process that happens naturally when bacteria breaks down organic matter, producing a digestate that can be used as a soil fertilizer and a biogas which can be burned to produce electricity. According to the firm, at least 450 organic waste recycling plants would need to build to service this demand. So far, only five have been built. 

An anaerobic digestion plant derives its revenue from gate fees, the production of electricity and the sale of compost.

Nick Ross, managing partner at Acuity who was previously at Electra Partners, said the fund represented a “new opportunity” for investors to benefit from the UK’s commitment to address the issues surrounding waste disposal and renewable energy generation. Ross co-founded Acuity with former Electra colleague Mark Speeks in 2008.

Investments will be made through a combination of secured debt and equity, targeting a tax-free running yield of 10 percent and the return of capital within seven years.

Bill Elliott, chairman of Acuity’s waste management operating partner, Envar, said anaerobic digestion was a “proven and safe” way of dealing with waste and generating renewable energy. 

The building and commissioning process will take up to 12 months after which each site will be cash positive.