The fund closed slightly above its €250 million hard-cap following support from insurance firms and pension funds in Germany, the Netherlands, Austria, Sweden and Switzerland and comes after a little under two years of fundraising.
Some €90 million has been deployed into two assets in Canada, with a further €90 million currently under consideration for another four projects. The fund is aiming for returns between 8 and 10 percent and invests across the OECD.
While the fund was a novelty when first launched, Tobias Reichmuth, chief executive of SUSI, said this did not deter investors looking for long-term cashflows.
“I think it was plain vanilla in comparison to other fundraisings we have done because this clearly falls into the alternative investment class, with an infrastructure-like risk-return profile,” he told Infrastructure Investor. “We of course had to explain the business model, as to how to generate income with storage infrastructure. The questions [investors] asked were mostly about any technology risks.”
Reichmuth said these factors were mitigated by SUSI only using technologies that are readily deployable on an industrial scale, with the two investments so far using lithium-ion batteries and flywheels. Storage technologies such as power to gas and supercapacitors have been ruled out by SUSI so far.
He added that the fund’s projects must be able to produce 10MWh from now for 10 years, resulting in projects usually being installations of 11.5MWh, factoring in potential deteriorations. These considerations all add up to the storage fund being a typical infrastructure play.
“At least 75 percent of the projects the fund acquires must come with long-term capacity agreements,” he said. “These agreements come with a fixed price per kWh of storage capacity and we see deals of 4-20 years duration. It’s not so different from the long-term power-purchase purchase agreement you see with wind farms, except that they do not have the volatility of wind production. We believe that energy storage will, in future, be a big playing field for infrastructure investors.”
Before it began fundraising, SUSI engaged with the Swiss Federal Institute of Technology and the Swiss Ministry of Energy on potential technologies and business models, providing the firm with an educational lead as well as first-mover advantage.
“We came well prepared and this was needed because it’s a nascent market and it’s not common knowledge,” Reichmuth explained. “Our role as an investor is not only to provide money, it’s really to bring the structuring knowledge to the table. The developer has all the permits but maybe lacks the experience on how to structure a deal in a way that is acceptable for the offtaker, which could be a utility or private company.”
He adds: “I think we do have first mover advantage here. The returns we can currently lock in are maybe 250 basis points higher than with renewable energy deals with a similar risk profile.”
Energy storage has yet to convince the banking market to embrace the sector, with both SUSI deals financed purely on an equity basis. However, Reichmuth said it is currently working on deals with debt and expects the banking sector will become more comfortable with the sector once more projects are executed.
In the meantime, he doesn’t seem too bothered by the lack of debt, as he wrote in our recent Energy Transition report: “We are now in a position where we can negotiate double-digit project returns with excellent downside protection without debt financing – and it’s obvious this represents potential upside in the future once banks decide to enter the market.”