IMCO bets on ‘progressive’ UK battery market with Green Frog deal

IMCO infra head Tim Formuziewich tells us ‘competitive’ renewables pushed the asset manager to look at storage and shares his plan to turn Green Frog into a utility-scale platform.

The Investment Management Corporation of Ontario is set to acquire Green Frog Power, a developer, owner and operator of flexible generation projects in the UK, which would be the first time the Canadian investment firm bought a company outright.

IMCO has agreed to invest C$500 million ($398 million; €338 million) in Green Frog “over the coming years” with a view to growing the company and establishing a global, utility-scale battery storage platform, the firm said in a statement.

“We found that the UK had the most progressive market design for batteries today,” IMCO’s managing director of global infrastructure, Tim Formuziewich, told Infrastructure Investor. “Renewable penetration rates are at a point where batteries are needed in the UK,” he added, noting that penetration is slightly above 30 percent and that as it increases so do intermittency-related issues.

“As part of the transaction, not only are we acquiring nine existing interconnection points but we have a pipeline of opportunities that may take up a lot of that C$500 million,” he explained.

Green Frog represents IMCO’s first investment in battery storage, a sub-sector that checked a number of boxes for the Canadian firm.

“As we started pursuing opportunities and building a team, one of the things that we struggled with was being competitive on renewables transactions and there were two reasons for that. One, because the cost of capital for renewables today is very, very competitive; and the second is, we have a long-term view of the merchant curve in some markets that is probably less competitive than some of our peers,” Formuziewich said.

“And so, we decided to take a step back and say, ‘well, if this is our view of the world – if you’re in a solar-dominated marketplace, the merchant revenues you’re going to get aren’t likely going to be particularly good – so, what are the technologies that make sense to invest in and do they make sense for IMCO?’ We tried to answer those questions and concluded that batteries are an intriguing opportunity.”

A head start

Other assets in IMCO’s portfolio include hydroelectric plants in Canada; euNetworks, a fibre and data centre company in the UK; and two midstream assets. The latter are legacy assets, Formuziewich explained, inherited from the Ontario Pension Board and the Workplace Safety Insurance Board, the two institutional investors that established IMCO in 2017. Since then, two more LPs have joined IMCO’s client roster: the Ontario Provincial Judges Pension Plan and the Workplace Safety and Insurance Board Employees’ Pension Plan Fund.

“Each one had their own infrastructure portfolios, which they contributed to the programme I now oversee,” he said, referring to the firm’s two initial clients. The contribution of these portfolios is also part of the reason IMCO has already invested C$6.2 billion – or 8 percent of its C$73.3 billion of AUM – in infrastructure.

The firm invests in other funds as an LP but also invests directly into the asset class.

“When I arrived [in May 2019], there were about 16 or 17 different GP relationships and we’re trying to narrow it down to five or six. So, we’re allocating more money to a smaller number of GPs and that has typically helped us drive down the cost of those investments, as well as positioning us to be a good strategic partner to those GPs,” Formuziewich commented.

In July, IMCO made a commitment to Brookfield’s Global Transition Fund. Though the specific amount was not disclosed it was enough for Brookfield to characterise IMCO as a “meaningful initial [investor] in the fund”.

Formuziewich expects IMCO’s portfolio to be evenly split between fund and direct investments; “roughly that kind of mix, or at least, that’s what we’re targeting”, he said.

Asked whether the firm would invest in midstream, Formuziewich said: “Because our portfolio is growing, we have a bias towards investments that offer growth as opposed to melting icebergs.

“The second thing is, we don’t have a 40-person team today. We have an 11-person team managing a lot of capital and so, we are trying to focus our efforts on pursuits that, if unsuccessful, at least we will have learned something that we’re going to be able to use in the future,” he continued.

“And the third thing is that we’re trying to ‘future-proof’ our portfolio. We want to own things that we can hold forever. So, strategically, midstream has not been a major focus for us over the last few years.”