ICG continues Australian renewables push with Engie-Mitsui partnership

The Australian fund manager has taken a 75% stake in a new renewables platform alongside Engie and Mitsui, with 1.3GW of development assets in its pipeline.

Infrastructure Capital Group executive director Edward Lloyd told Infrastructure Investor he has been “surprised” at the amount of deal activity in the mid-market space during the pandemic, as the firm entered a partnership with Engie and Mitsui to form a new renewable energy platform in Australia.

Lloyd said that the market appeared to be returning close to normal in many ways in terms of dealflow, as investors adjust to the new normal of working under covid-19 restrictions.

“I’m surprised at how much activity there has been and continues to be. Transaction processes are continuing on as normal under the circumstances and the world has become used to doing things remotely.

“If you told us at the start of the year that we would invest in an asset that no-one in our team had visited physically, I would have struggled to believe that.”

Lloyd was speaking to Infrastructure Investor after the Australian fund manager announced that it had entered into a partnership with French energy giant Engie and Japanese trading house Mitsui to acquire a 75 percent interest in the Australian Renewable Energy Trust.

AREP has been spun out of International Power (Australia) Holdings, a joint venture between Engie (72 percent) and Mitsui (28 percent). IPAH put out a call for bids to partner with it on the new platform in January.

AREP will be seeded with the 119MW Willogoleche Wind Farm in South Australia, which was commissioned in November 2019 and has been developed by IPAH. The platform has several other projects at various stages of development, with a pipeline totalling more than 1.3GW of capacity.

Assets to be developed include the 215MW Gregory Solar Farm and the 200MW Warhook Solar Farm, both in Queensland; and the 120MW Silverleaf Solar Farm in New South Wales. All three projects are expected to reach financial close in 2020-21.

According to the sale brochure seen by Infrastructure Investor earlier this year, the Hills of Gold Wind Farm in NSW, which was under feasibility review and could have a capacity of up to 350MW, was also part of the deal.

ICG declined to disclose how much its investment in AREP was worth, but Infrastructure Investor understands it is approximately A$400 million ($280 million; €240 million).

“Engie is a global leader in this space – they’ve developed renewable energy assets in a variety of different places, so supporting their continued expansion of that programme into Australia is a real opportunity for our investors.

“It has been difficult to invest in development projects in renewables over the past few years, for a bunch of reasons, but we see this partnership with Engie as an opportunity to work with a developer to bring projects to financial close that reflect what our investors are looking for and are consistent with the existing quality of our portfolio.”

Lloyd argued that a combination of local knowledge and international development expertise would result in attractive assets with a suitable risk-reward balance.

“Experience in this space counts for a lot. I think the market in recent years has probably brought some projects to market that should never have been developed, and newcomers to the Australian market have often been involved in funding the development of those. AREP is a combination of experienced Australian investment with global development expertise, which is a good match to bring to a project,” he said.

Seed asset Willogolechie Wind Farm has a power purchase agreement in place with Simply Energy, the retail arm of Engie ANZ, that runs to 2030.

“Having Simply Energy involved is hugely valuable. We see PPAs as having a critically important role, although we don’t believe every project has to be 100 percent contracted. We are certainly anticipating that Simply Energy will continue to play a role [in the portfolio] in future.”

ICG has made the investment in AREP through its Australian Renewables Income Fund, which has reached in excess of A$500 million in capital raised. Lloyd said the commitment to AREP would account for a “significant portion” of the fund’s capital, so ICG would return to the market shortly for another round of fundraising.

ARIF’s portfolio includes three other operational wind farms in Australia: the 55MW Mumbida Wind Farm, the 107MW Bald Hills Wind Farm, and the 132MW Hallett 4 Wind Farm.