For regular followers of the energy transition asset class, Meridiam’s recent announcement that it has entered the electric vehicle charging space was an important one. Why? Because EV charging infrastructure – alongside storage and, to a lesser extent, energy efficiency retrofits – is seen as one of the most promising corners of the energy transition.
That Meridiam, one of the industry’s best-known managers, not only invested in the sector, but confidently asserted that its debut deal is very much an infrastructure play (instead of brushing it under the table, as happens with many a style drift) is what marks it out as an important milestone.
“For fast-charge, for instance, the business model is close to traffic models – with risk-sharing mechanisms which can be implemented – that are applied for traditional infrastructure projects,” explained Meridiam partner and director of corporate development Julien Touati. “We see Allego as a collection of local concessions (e.g. Berlin or Amsterdam), contracted activities for large corporates (e.g. multinational contracts passed with several retailers and leading leasing companies) and the [European Commission-backed] Mega-E project”.
As you can read in our recently published Energy Transition supplement, others are also turning their attention to the sector. “We’re seeing the first projects coming out with a decent risk profile for a long-term investor like us,” said Mirova head of renewable energy Raphael Lance, hinting that Meridiam will soon have company in the space.
Most managers – and especially those focused on the energy transition – would be remiss not to look at ways to make EV charging infrastructure fit the bill. After all, the electric vehicle market is expected to account for 30 to 40 percent of new car sales in Europe by 2030 and 54 percent of all new global car sales by 2040, according to Meridiam and Bloomberg New Energy Finance, respectively.
Storage is undergoing a similar boom, with research firm IHS predicting more than 40GW of installed capacity by 2022, up from an initial 340MW in 2012-13. Which is why, again, so many people are trying to make it work as an infrastructure play, even if the actual pool of participants is still small.
The dispatches from the frontlines, though, are pretty positive. As SUSI Partners founder and chief executive Tobias Reichmuth wrote in our supplement: “We are now in a position where we can negotiate double-digit project returns with excellent downside protection without debt financing – and it’s obvious this represents potential upside in the future once banks decide to enter the market.”
Of course, both asset types will need project finance debt to scale up, but there’s no reason why that won’t eventually happen. Early-movers are already rolling up their sleeves to make sure project risk is mitigated, revenue streams are visible and the right contractual structures are put in place. No one is under any illusions that these assets aren’t hard work, but the crucial bit is that they can be made to work.
What’s more, this is very much a manager’s play for the foreseeable future, not only because of the amount of work that needs to go into structuring these deals, but also because the size and availability of these assets make them a hard target for your average direct investor.
That is one of the crucial lessons that came out of our report: you need real expertise to originate, structure and manage energy transition assets – particularly now that renewables, by far the biggest investable pool, are steadily moving away from tariff-backed vanilla structures.
This is good news, because specialisation is key to the expansion of any asset class. And as specialisation opportunities go, you can’t get much better than this one.