GE EFS raises $414m Japan solar fund

Backed by Japanese investors, the vehicle is seeking to raise another $400m to invest in operating assets in the country.

GE Energy Financial Services has raised ¥46.3 billion ($414 million; €362 million) for an investment fund targeting Japanese solar power projects with support from the Development Bank of Japan and a group of domestic institutions.   

The US firm said the DBJ, which helped structure the fund, has committed one-third of the capital raised, with the remaining contributed by a group of Japanese institutional investors. GE EFS will hold both GP interests, managed through its Japanese subsidiary, and some LP interests in the fund. 

The manager is looking to raise additional commitments in the third quarter of this year to bring the fund to a total of ¥75 billion, with a hard-cap set at ¥90 billion. 

The vehicle, dubbed EFS Energy Japan Investment Limited Partnership, invests in operating solar assets in the country. It is seeded with the 32MW Kumenan solar plant which began operations in 2016, with GE EFS holding a majority stake. 

Targeting returns in the mid-single digit range, the close-ended vehicle has a 20-year fund life, including a four-year investment period. Sushil Verma, GE EFS’ head of Asia Pacific, said the prolonged fund life comes in response to LPs’ demand, as domestic investors are “hungry” for yield-generating assets supported by long-term contracts, particularly in their home market. 

He expects the fund will be invested in a portfolio of 600-800MW operating solar projects.

The firm said that more domestic investors are seeking opportunities in the renewable energy market as Japan looks to reach its goal of generating 24 percent of its power from renewable sources by 2030. 

Since the introduction of feed-in tariffs for renewables in 2012, a lot of investors have viewed the Japanese market favourably, notably because the solar tariff was among highest in the world, observed Yoichi Katayama and Minako Wakabayashi, two Tokyo-based partners at law firm Orrick. 

However, many potential solar projects which obtained FIT approval did not come with proper feasibility studies and due diligence, said Katayama. 

Therefore, the Japanese government was criticised for its lack of planning for the renewables sector, he noted. “The recently proposed cancellation of the FIT approval for unbuilt solar capacity is a positive move to consolidate the industry,” he said in an interview with Infrastructure Investor

The biggest challenge for those unbuilt project is the inadequate transmission capability, particularly in Hokkaido and Tohoku regions. Curtailment without compensation has become a serious issue, impacting on the development of the solar sector, he said. 

The renewables market offers good opportunities for investors, as Japan is still far from reaching its 2030 target, said Wakabayashi. Some investors are now diversifying their strategies away from solar to wind, the lawyers said.

Solar and wind power currently produce about 3 percent of Japan's electricity output, while hydro power contributes 9 percent.