Roughly a year after OMNES Capital closed its fourth renewable energy fund on €660 million, exceeding its hard-cap, the Paris-based asset manager is planning to hit the fundraising trail by the end of the year for Capenergie 5, managing partner Serge Savasta told Infrastructure Investor.
“The idea is to set up a fund that will exceed €1 billion,” Savasta said, referring to the target that OMNES is setting for the new vehicle, and noting that Capenergie 4 raised more than €800 million when factoring in co-investment funds.
“So, we need to have more than that just because the companies we are partnering with, their projects are growing bigger,” Savasta said. “They do the same business they have done for years, but they need to be more competitive in the way they produce electricity. They are searching for economies of scale and so the projects are getting bigger.”
Capenergie 5 will follow the same strategy as its predecessors; investing in renewable energy developers, primarily in Europe. This strategy, according to Michael Pollan, a partner and a member of the firm’s renewable energy team, sets OMNES apart from its competitors.
“We have been backing renewable energy developers for the past 15 years,” Pollan said. “We have not been acquiring assets on a standalone basis. And the idea has always been that giving growth capital to a developer to be able to keep the assets that they develop and then build them on their own balance sheet turns them into an IPP that will create strategic value at exit.”
“For about 10 of these 15 years, the strategy was not very well understood by the market because for most investors, renewable energy meant assets.”
This approach has translated into OMNES being able to build a large and diversified portfolio. Capenergie 4, for example – which has not yet been fully deployed – has invested in nine companies, which collectively own 350 projects in 14 European countries and Australia.
According to Pollan, the size and degree of diversification of the firm’s portfolio are also what protect the firm’s investments from shocks such as inflation. “I think here there’s a big difference between our approach and that of the more traditional infrastructure investment approach, which is that first of all, our portfolio is extremely diversified across 15 countries, but in addition, we have 20GW with 350 different projects.
“What that means is that every month or two we are reaching investment decisions for a handful of new projects – talking to EPC contractors and locking in steel prices, signing PPAs. You’re sort of locking in these economics and sometimes you get mismatches between, let’s say, capex levels and PPA levels. We are spreading this risk over a massive portfolio. A traditional fund may only have 10 or 15 assets. So, once they lock this in, they are either protected or they’re not against inflation. But we are spreading this out over a much longer period of time and portfolio.”
This is also part of the reason why each successive Capenergie fund has been able to generate higher returns than its predecessor.
According to Savasta, Capenergie 2, which closed on €145 million in 2010 generated a net IRR of 15 percent, while Capenergie 3, which closed on €245 million in 2017 generated a net IRR of 21 percent. At the moment, Capenergie 4 is generating a net return of 25 percent. “However, the fund is still very young but this gives us a good idea of the portfolio’s potential,” Savasta commented.
“The objective [for Capenergie 5] is to reach an IRR above 15 percent,” he continued. “Otherwise, we would be disappointed if we didn’t achieve the same as we did for the other funds.”
Asked whether Capenergie 5 will be any different from its predecessor funds, whether in terms of renewables technology or types of assets, Pollan replied: “Our growth vectors are these developers that we turn into IPPs. They are on the ground and they’re constantly thinking about what’s next in the energy transition and where the next markets are.
“For us, rather than take a sort of top-down approach of saying we will allocate X percent to hydrogen, for example, we will follow these developers when we think it makes sense.”