KKR gets moving on climate strategy with $750m EV and storage investment

KKR has kicked off its new climate investment strategy with a $750 million investment in Zenobe, a UK-based battery storage and EV fleet provider.

The strategy, which is being run out of KKR’s infrastructure unit, will see it team up with existing shareholder Infracapital, which announced it is deploying a further £270 million ($336.2 million; €314.3 million) from its greenfield fund, while Pantheon announced a £35 million deployment through its London-listed investment vehicle Pantheon Infrastructure.

Exiting Zenobe is Tiger Infrastructure Partners, which led an initial £50 million investment in the company in November 2017, when it was then known as Battery Energy Storage Solutions and had a 63MW battery storage portfolio. It was renamed to Zenobe in March 2019. Infracapital made its initial investment in the company in November 2020 and the company now has 430MW of battery storage in operation or under construction, with another 1.2GW of projects in advanced development. It is also the largest owner and operator of EV buses in the UK, Australia and New Zealand, according to a statement.

With KKR thought to be at the nascent stages of fundraising for its climate strategy, Infrastructure Investor understands the deal is initially being funded from KKR’s balance sheet. KKR declined to comment on the source of the capital, but said in a statement that Zenobe sits “across two of the largest decarbonisation market opportunities in infrastructure”.

As for why the deal is coming from the climate strategy rather than the flagship infrastructure strategy, KKR infrastructure director Shreya Malik responded: “There are three pillars in the climate strategy. The first is accelerating the investment in mature solutions, such as storage solutions. The second pillar of that strategy is in scaling new solutions and that’s really around decarbonising transport, energy efficiency solutions and also around energy management solutions. That’s very much in fitting with Zenobe’s business model. The third key pillar for the strategy is the transitioning of the conventional, higher emitting assets to become more low-carbon over time.”

Alberto Signori, KKR’s lead partner on the deal, added that the firm is equally excited about both business streams. In February, it secured £235 million in debt financing from five banks for two grid-scale, transmission connected battery storage assets totalling 400MW in the UK, the largest project finance facility for battery storage projects arranged in Europe. It also has a 25 percent market share of the UK’s electric bus fleet, which has the largest such fleet in Europe.

Buses and storage

The bus fleet business has also been expanded to Australia and New Zealand, while the storage business has a presence in continental Europe and, following an agreement with Japan’s JERA Corporation in December, has also been exploring projects in New York and New England in the US.

KKR has plans to expand the bus fleet business to the US, too, with an eye on the country’s yellow school bus system, where Signori said “there is a huge need for electrification”. The business includes the financing of chassis, batteries on the vehicles and charging infrastructure in depots.

“The buses drive the same route every day and they park at the same place every day, which makes it quite predictable and quite stable and which allows us to contract these assets on a long-term basis and on an availability basis,” Malik added.

The predictability nature of the assets was key, according to Signori and Malik, although finding that safe haven was not an easy task for KKR.

“We looked at other business models in the same sector, but we were not convinced we could get the predictability of the cash flows for us to get comfortable. This is probably one of the very few business models that had the downside protection,” Signori explained.