Hg, Foresight capitalise on Spanish solar sell-off(5)

Each firm has purchased a photovoltaic plant that has a government-backed feed-in tariff. The tariff – which locked in multi-year fixed rates for projects connected to the power grid from September 2007 to September 2008 – has fuelled solar development in Spain.

Alternative asset managers HgCapital and Foresight Group have each purchased operational Spanish solar projects as a surplus in such assets hits Spain’s secondary, or operational, renewables market.

Foresight purchased a 9-megawatt plant, which is operated by BP Solar, from Banco Santander in the Castilla La Mancha region, while Hg acquired a 5.25-megawatt plant outside Toledo from Spanish holding company Montebalito and Invercartera Energia, a division of the principal investment arm of Spanish bank Caixa Catalunya. No financial details were disclosed for either deal, though the Foresight transaction is thought to be in excess of €50 million.

“Spain is generally a good place to be right now,” said Tom Murley, head of Hg’s renewable energy team.

Spanish solar plant:
Foresight's latest deal

He estimates the country has roughly 3,000 megawatts in operational solar power projects, 2,500 megawatts of which – or around $16 billion-worth of assets – were built in the last 18 months alone. The “mad dash” to build was spurred by a temporarily available, above-market tariff subsidized by the government that locked in stable revenue for decades. Spain offered 40-year contracts, with tariffs of 40 cents per kilowatt hour for the first 25 years and slightly less for the remaining years, for projects hooked up to the power grid between September 2007 and September 2008.

What construction and connection risks there were during development phases have been taken away.

Jamie Richards

“That is a whole lot longer and a lot more than any other country” offers, said Murley. Italy, for example, offers 20-year tariffs of around 25 cents to 30 cents per kilowatt hour, he said. “The tariff was so rich,” Murley said. “It is sort of a license to print money.”

Roughly half of the 3,000 megawatts are thought to be up for sale now, as many developers begin to sell projects as planned, while other groups, such as banks and infrastructure conglomerates, look to offload assets for balance sheet relief. The result is a plethora of opportunities for firms like Hg and Foresight, as well as fellow solar investors Platina Partners, Impax Solar, Hudson Clean Energy Partners, First Reserve and Riverstone Holdings.

Purchasing these operating assets are particularly attractive, noted Jamie Richards, head Foresight’s solar fund, because “what construction and connection risks there were during development phases have been taken away”.

Foresight’s first European Solar Fund was launched in November 2008 and has raised more than €40 million to date. It financed two Italian solar plants with a 10-megawatt capacity that were finished in March. This deal was its first in Spain.

This is Hg’s second deal in Spain, having in March purchased four solar projects from AIG Financial Projects. The firm’s €300 million Renewable Power Partners Fund closed in 2006.