This article is sponsored by Ardian, Infranode, Prime Capital and Taaleri Energia. 

At our inaugural Nordics roundtable last year, we described the setting as “unusual”. This was due to the unseasonably warm weather gracing Stockholm last May. A year down the road, however, what seems most unusual is that three Swedes, a Finn, a German and a Brit were able to gather in a meeting room.

As is fast becoming normal, the covid-19 era means the second edition of this discussion is taking place via video-conference – although Sweden’s approach to managing the pandemic means the only things preventing us from gathering in the offices of local fund manager Infranode are other countries’ rules and restrictions.

Aside from changes to how we conduct our roundtables, the crisis is likely to prompt a shift towards more sustainable investing strategies. Even in this strange new world, there are few better places than the Nordics for this.

A survey last year by Aviva Investors of institutional investors in real assets found that integration of environmental, social and governance factors into investment processes was far more prevalent among Nordic insurers and pension funds (67 percent and 64 percent, respectively) than it was among their counterparts in Western Europe (47 percent and 50 percent) and Southern Europe (51 percent and 52 percent).


“For other assets that are being privatised or part-privatised, then it matters quite a lot whether you are local or have local backing”

A sentiment so prevalent among the region’s LPs helps raise the bar for managers coming into the Nordics, as Simo Santavirta, senior managing director at French fund manager Ardian, attests.

“We’ve seen many local LPs in the Nordics really focused on sustainability,” he says. “This is a general market trend but the Nordic countries have been among the pioneers in the
field. We quite enjoy having those discussions.

“This fits in well with what we see ourselves doing in the Nordic region in sustainable energy investment, where we set up eNordic as our sustainable energy platform last year.”

Christian Doglia, a founding partner of Infranode, echoes this view, adding that it goes beyond the renewables sector.

“The investors we partner with, which are predominantly Nordic investors, invest with us because of the rigorous sustainability approach that we have, not only in renewables, but across the full infrastructure spectrum,” he says. “Global LPs see the Nordics as one of the most advanced regions in this area. The local investors have a strong ESG agenda, but so does the public sector all the way from central government down to the local authorities, who are focused on sustainable ways to invest in infrastructure across the board.”

In a particularly ESG-conscious region, there is increased pressure on managers to address these concerns, even if they are investing in renewables.

“As a manager, ESG is not only about having all the capabilities, processes and tick boxes in place,” argues Kai Rintala, managing director at Finnish renewables manager Taaleri Energia. “You also have to genuinely believe in and deliver the promised outcomes through your investments and work together with like-minded LPs to achieve those goals.”

Going with the wind
Although an effective ESG investment mindset should lead investors beyond renewables, the sector is often the first port of call, with the Nordics offering some of the best opportunities in Europe, attracting both local and international players. A joint investment last month between Korean Western Power and NH Amundi Asset Management in a 240MW Swedish wind project is testament to one of the region’s selling points: scale.

“To me, the great thing about investing in wind infrastructure in the Nordics is that you can realise large-scale projects and deploy a sizable amount of capital in single – albeit complex – transactions,” says Mathias Bimberg, head of infrastructure at German asset manager Prime Capital, which is raising a Nordics renewables fund. “We have also reached grid parity and no longer rely on government subsidies. In my view, going forward, this trend will be driven by corporates.”


“The public sector is having to spend an enormous amount of money to support the wider community and it may trigger further privatisations”

These factors have given Scandinavia’s renewable energy market an advantage in recent years, with other European markets in a state of stasis or transition. However, with subsidy-free, greenfield projects re-emerging in Italy, Spain and the UK, among others, does this weaken the case for the Nordics as a prime destination? Not so, according to Santavirta, who makes the case for active asset management above just contracts and geographies.

“The time when you could just invest passive money is probably past us,” he declares. “You really need to have an industrial strategy to create real value through actively managing the assets. You need to be able to demonstrate to the other stakeholders you bring in more than just cheap capital – that you can actually drive value creation.”

Rintala agrees and adds that the strength of the region’s stakeholders can keep it ahead of other resurgent markets. “Having the sophistication and discipline of the market – whether it’s with developers, PPA counterparties, traders, financiers, or whomsoever – and getting projects to work purely on the market alone makes it an excellent investment environment,” he says.

The latest challenge for these markets, as a result of covid-19, is the large fall in current power prices and a significant fall in forecasts. Cheap, green and consistent electricity has made the Nordics a favoured hub for tech giants such as Google and Facebook, as well as industrials such as Alcoa, and has turned the region into a growth hub for power-purchase agreements. Norway, Sweden and Finland account for three of Europe’s top four PPA markets, according to renewable fintech firm Pexapark.

Prime Capital, Bimberg explains, has some solutions for its Nordics projects.

“We were very cautious in past transactions, securing long-term PPAs with solid offtake agreements for a substantial part of the production,” he begins. “Prices have come down a lot, however, and institutional investors are no longer willing to subsidise low PPA prices, relying heavily for their return on the unhedged part in a distant future. This calls for more flexible structures, and certainly only projects with a very competitive levelised cost of energy can succeed. We seek to capitalise on a strong trend to electrify transport – for instance the Norwegian shipping sector – or the growth in data centres, by finding more creative offtake solutions.”

Rintala adds: “People say it’s no longer adequate to be green – you now have to be ‘deep green’. That means they should only use electricity that is produced from renewable sources, secure financing from green bonds and, where possible, capture the heat they produce and recycle it through district heating. Adopting this approach becomes a significant competitive advantage, both for the data centres themselves and the businesses that use them.”

Growing opportunities
Bimberg’s and Rintala’s comments are a pointed reminder that the Nordics infrastructure market has a wealth of opportunities beyond its thriving renewables industry, with a strong decarbonisation agenda holding significant sway.

“District heating will be interesting,” says Santavirta. “For us, that actually ties right into the renewables investments, where this energy system between heating and power will likely merge at some point. If you’re able to invest in this sector and create real portfolios, this is where you can add value.”

“District heating has been popular and we’ve done a fair bit of it in Sweden, Norway and Finland,” says Doglia. “We believe that investments in district heating will continue but we also see increasing needs in other sectors. Social infrastructure is one of the sectors requiring more investment due to the strong underlying demographic trends coupled with the local authorities becoming increasingly capital-constrained. This is becoming a greater focus.”

Doglia also identifies water and wastewater facilities as potential areas of investment, although unique regional challenges remain.

“For the most part, it is in the hands of local authorities but is in dramatic need of investment,” he says. “Pipes are bursting during cold winters and there is an unsustainable level of leakage which drives this investment need. In Sweden, private companies are not allowed to own water distribution – and even though you’re allowed in Finland, they’re still in municipal hands – but because of the need, we see an opening here for private investment. In addition, across several Nordic countries, low power prices mean no or low dividends for municipal-owned utilities. At the same time, municipal tax income has shrunk for the first time since the 1990s crisis in Sweden. Both factors will push further the need for part-privatisations of municipally owned infrastructure companies.”

Compared with many other European markets, much of the infrastructure in the Nordics is still owned by public municipalities. As Doglia remarked in last year’s roundtable, “privatisation is perhaps not the easiest word here”.

Taaleri Energia

“As a manager, ESG is not only about having all the capabilities, processes and tick boxes in place”
Taaleri Energia

However, the pandemic could make this a more palatable solution, at least to the municipal owners.

“It’s early days in this crisis and it will be interesting to see what the municipal sector does,” says Santavirta. “The public sector is having to spend an enormous amount of money to support the wider community and it may trigger further privatisations. That will be an interesting sector to follow.”

No mass sell-off
Doglia agrees to an extent, but does not envisage the complete sale of publicly owned infrastructure.

“District heating has been a sector that has been slightly easier for public sector owners to let go of, compared to, for example, electricity distribution,” he says. “We think there’s going to be an increased drive towards part-privatisations of integrated utilities, which will have district heating and distribution system operators. We see the partnership model as one that will help drive more deals.”

True to form, days after our roundtable took place, Norwegian pension KLP took a 33 percent stake in utility TronderEnergi. Meanwhile, Doglia’s Infranode has partnered with the Port of Esjberg in Denmark. The firm will be investing in new facilities for the wind turbine industry in the municipality-owned port.

There is an additional challenge awaiting some investors, though. Suspicion of foreign investors looking to take advantage of the crisis to buy infrastructure on the cheap has forced the hands of governments across the world to tighten restrictions on foreign ownership of strategic assets. As Doglia gently puts it: “There have been examples where non-Nordic investors have been prevented from progressing on transactions, despite [offering market] terms.”

For two of our other roundtable panellists, this puts extra onus on demonstrating their local ties to stakeholders.

“We certainly consider ourselves local in the Nordics,” explains Ardian’s Santavirta. “We created a management team, which is local. We have senior industry ex-chief executives who are all local and drive dealflow and asset management. A local approach is always important.”

The challenge for international investors is less prevalent in the renewables sector, according to Bimberg.

Prime Capital

“The great thing about investing in wind infrastructure in the Nordics is that you can realise large-scale projects”
Prime Capital

“To drive growth, bring down costs and make the market more efficient, we need international investors with their capital and expertise,” he says. “We are as welcome as ever. It’s more difficult to get access to grid or district heating assets, but in the renewable space, with assets being built, the field is more open.”

Doglia agrees with this sentiment and raises a pre-coronavirus example from last year, when Orsted’s sale of Danish grid business Radius fell through amid political concerns that it would be bought by foreign investors. It was later sold to Danish utility SEAS-NVE.

“Certain sectors like renewables have been very open, and it didn’t really matter if you were a Nordic institution from a political point of view,” Doglia says. “For other assets that are being privatised or part-privatised, then it matters quite a lot whether you are
local or have local backing. There will be a continued focus on finding the right partnership model for assets that are more politically sensitive. And on our side, that is the reason why we focused on having mainly Nordic institutions in our funds as part of answering that need, creating long-term partnerships with the backing of Nordic institutions.”

With both locals and internationals remaining keen to invest in the region, the Nordics may well have the stability infrastructure investors are looking for in a crisis-ridden world.

Simo Santavirta, senior managing director and head of asset management, Ardian
Santavirta joined Ardian in 2016. He spent 13 years at power generation group InterGen, latterly as vice-president, strategy and portfolio management. An engineer by background, he began his career at Finnish energy company Fortum Oyj.

Kai Rintala, managing director, Taaleri Energia
Rintala has more than 16 years’ experience in infrastructure. Before joining Taaleri Energia, he spent 10 years at KPMG in Helsinki and in London, advising public and private sector clients on strategy and transactions across energy, transport and social infrastructure. He built and led the infrastructure business at KPMG Finland with clients ranging from utilities to ministries and construction firms.

Mathias Bimberg, head of infrastructure, Prime Capital
Bimberg joined Prime Capital as an investment manager in 2015 and became a managing director in the infrastructure team in March 2018. He was named head of infrastructure in December. He previously spent four-and-a-half years as a manager in EY’s transaction advisory services team, where he focused on private equity clients.

Christian Doglia, founding partner, Infranode
Doglia formed Infranode alongside fellow partner Philip Ajina in 2013. He is involved in all aspects of deal origination and execution, fundraising, business development and asset management. In 2009, he founded Arcadium Infrastructure, where he led the establishment of an infrastructure debt fund. He previously spent seven years as vice-president of the infrastructure team at Financial Security Assurance in London.