The sun rises again

The image of the Spanish solar photovoltaic (PV) industry may have taken a few blows to the solar plexus (pardon the pun) in recent times – but the faith being shown in it by one of the world’s largest private equity firms and one of Europe’s heftiest institutional investors might well trigger something of a renaissance.

Towards the end of last year, the Spanish government famously (or infamously?) announced through a Royal Decree that it would reduce the number of applicable hours through which solar PV plants might qualify for the country’s feed-in tariff. This had the potential to reduce solar subsidies by up to 30 percent between 2011 and 2013, and alarmed investors who had not expected to see the implementation of retroactive measures.

Some better news came in March this year when rating’s agency Fitch proclaimed that the retroactive cuts would be unlikely to “cause systemic long-term impairment of the debt financing of large-scale photovoltaic (PV) projects”.

And, for those who feared that the negative press would strike a lethal blow to investment in Spanish solar, July brought even more gladdening news when KKR announced it was teaming up with Munich Re to take a 49 percent stake in assets operated by Grupo T-Solar, the solar PV subsidiary of Spanish developer Isolux Corsan.


Explaining the rationale behind the investment in an exclusive interview with Infrastructure Investor, KKR’s European head of infrastructure Jesus Olmos said: “T-Solar is the leading solar PV company in Europe and it has lots of growth ahead. Plus, we liked the management team’s experience and track record. When we buy into a regulated asset, there’s always risk. You face that in the UK water industry, in the German nuclear industry, etc. So there’s always risk, but you have to get comfortable with that risk and how the risk is accounted for. In this case, we’re very happy with the risk/return profile that we were able to arrive at.”

The deal sees KKR and Munich Re acquire 49 percent of Grupo T-Solar’s existing operating assets, which have seen total capital expenditure to date of almost €1.1 billion. Grupo T-Solar will retain a 51 percent stake and provide management services to the assets, which will be housed in a new company, known as T-Solar Global Operating Assets. The new company will have the option to acquire new solar plants developed by Grupo T-Solar once they are fully operational.

The existing assets comprise 42 solar PV plants (34 in Spain and 8 in Italy), with an aggregate installed capacity of 168 megawatts (MW) and a generation capacity of over 250 gigawatts per year of clean energy. In a statement, T-Solar chief executive Juan Laso said the group’s business plan envisages capacity increasing to over 500 MW by 2014.

For KKR, solar PV appears to fit well with the risk profile that it is looking for from its infrastructure investments. According to Olmos: “We don’t want our infrastructure assets to be dependent on the economy. We want predictable cash flows and something that can give us yield from day one. Solar PV is one of the areas that ticks many boxes.”

As a notable aside, other investors appear to share that view. In August, RREEF Infrastructure announced it was acquiring a 49 percent stake in the 50 MW Arenales solar power plant starting construction near Seville, to the south of Spain.   

Not that KKR’s interest in renewable energy extends only to solar. Just a month earlier, the firm formed a €236 million partnership with Italian energy company Sonergia to invest in wind parks across France. The partnership gives KKR access to wind parks with an operational capacity of 153 MW, with a further 95 MW of capacity to be built over the next 18 months.

KKR held a $515 million second close on its debut infrastructure fund towards the end of last year. Headed in New York by Marc Lipschultz, the team also manages a $1.1 billion separate infrastructure account on behalf of Korea’s $270 billion National Pension Service.