A partnership between Irish developer and asset manager NTR and London-based Legal & General Investment Management with £1.2 trillion of AUM has its first feedback from the market in the form of a first close for their joint Clean Power (Europe) Fund. A total of €390 million has been raised by the fund at the first close, which is aiming to raise between €800 million and €1 billion. NTR’s 2018 vintage second fund had a target of half that.
The capital raised includes both committed and co-investment capital, and the strategy is to invest in clean power infrastructure assets – primarily wind, solar and energy storage. Its first investment – three pre-operational solar projects in Spain acquired from renewable energy developer BayWa r.e. – was announced in January.
Legal & General has co-invested €50 million alongside external investors in the SFDR Article 9 fund, including European asset managers, Japanese institutional investors and the NatWest Group Retirement Savings Plan, which utilised LGIM’s life company platform to gain exposure to the vehicle.
The first close comes at time when many GPs are struggling to attract commitments.
“It is hard for anybody who needs funds raised this year, but Asia has helped us, in particular Japan, which is looking for OECD investments to gain access to dollars and euros. Generally, the Japanese see huge growth potential in Europe, but a lot depends on the EU’s promise to counter the Inflation Reduction Act,” Rosheen McGuckian, chief executive of NTR, which manages the fund’s assets, told Infrastructure Investor.
The Clean Power fund invests in the development, construction and operation of wind, solar and energy storage assets – all exposed to the current storm of supply chain problems, inflation and higher cost of debt. But things are looking up.
“At the moment, we’ve got eight to nine projects on the go and under construction, and the solar supply chain in particular has improved. The problem remains getting transformers and connectors. Sometimes we have to adapt to what is available, rather than get what we prefer. This adds months to a project. We now put orders in earlier to avoid delays, but this of course requires more equity upfront,” McGuckian said.
As for costs, they are somewhat countered by higher European energy prices.
“Costs have gone up 35 percent over the past year, but due to demand for clean power from quality projects, we’ve been able to increase the price of our PPA to compensate,” said McGuckian, who sees some benefits to the imposed caps on the income from selling power on the wholesale market, as delaying the contracting of power now matters less.
“The caps have meant that the merchant ‘nose’ is less impactful on risk/reward than before, and I am glad. It reduces volatility. Now that the typical cap is €100-€110/MWh, the relative importance of merchant nose has reduced, changing the conversation with developers,” McGuckian said.
In times like these, having the backing of an outfit like Legal & General provides LGIM as the fund manager with a buffer against the rising cost of financing. Also, “there are still a lot of banks chasing green assets, and we have a stable 50/50 equity-debt structure in this fund”, McGuckian said.
The fund is seeking mainstream core and core-plus investments with an average mid-ranking ticket size of €30 million to €100 million. Geographically, investments are likely to stay close to NTR’s existing assets in Sweden, Finland, France, Italy, Ireland and the UK.
L&G and NTR have worked together since 2015, when L&G became a cornerstone investor in NTR’s first two funds. The fundraising for the Clean Power fund was announced in October 2022.