In search of a second wind

It was a beautiful harvest. Last year, no less than four renewable energy infrastructure funds listed on the London Stock Exchange: Greencoat UK Wind kicked things off by raising £260 million (€316 million; $438 million) in March, followed by The Renewables Infrastructure Group, also known as TRIG (£300 million, July), Bluefield (£130 million, also July) and Foresight Solar (£150 million, October).

Each had its own angle within the clean energy market, whether it was pure solar, wind or a mix of both. But their combined efforts helped propel the annual renewables IPO haul to the grand total of £870 million – enticing several more to seek a listing. A number of fund managers soon plotted to go back to the market, too, confident that their initial pot of money would be deployed within a matter of months.

Evidently the wind has changed direction. The last vehicle to float, NextEnergy Solar Fund, did manage to raise £85.6 million on the London Stock Exchange in April, all of which was third-party money. But this total was at the bottom of the range for the offering, even after the fund revised its ambitions down from the £150 million it announced as its target in January.

Other vehicles have faced similar challenges. Last December’s secondary placement by Greencoat, which collected £83 million, was £50 million below its initial £135 million aim. TRIG also failed to impress in late March, when its £66.2 million secondary share issue missed its £85 million to £120 million target range.

Further signs suggest the problem is not attached to particular managers, but stems instead from dampened appetite among institutional investors. John Laing Environmental Assets Group (JLEN), for example, did reach its £160 million IPO target in March, but only after sponsor John Laing increased its participation in the fund from 24.9 percent to 40.0 percent.

Ingenious Clean Energy Income, a fund initially planned for admission to the London Stock Exchange in early April, has yet to float at press time. Investor feedback led the fund to tweak its strategy by dropping energy efficiency assets, originally part of the fund’s remit, and it is understood that the top of its target range has been reduced from £200 million to £180 million.

Mike Bonte-Friedheim, chief executive of NextEnergy, is not surprised. “Investors like size more than number of funds. They want existing funds to grow because that means more liquidity in the share.” Now that the UK counts a handful of renewable funds, he argues, investors want to see those vehicles deliver results before committing new capital to new funds. He says advisers and analysts expect NextEnergy to be the last fund to successfully float in the near future.

This view is echoed by David Hardy of JLEN, albeit in less definitive terms. “In the Private Finance Initiative (PFI) space there are now five or so well established funds and in the renewables space there are about six.” Investors are probably reaching the maximum amount they can allocate to the sector, he says. “It’s not surprising that there should be a pause when there’s been so much activity recently.”

That’s probably bad news for the few companies still planning to list. Provided they deliver on their promises, however, the picture should be brighter for existing funds. “We’ll invest the proceeds of the IPO very quickly and raise more capital to fund the projects we already have in our pipeline,” says Bonte-Friedheim. “Our target is to achieve a fund size of £750 million within the next three to five years.”