Singapore-based Swiss-Asia Financial Services has launched the China District Energy Fund, a Luxembourg SICAR vehicle with a target size of €500 million. The fund says it has already received $115 million (€84 million) from cornerstone investor and partner Dalkia, the French energy services firm, plus family and friends. It will now target further commitments from institutional investors.
The fund has what Pying-Huan Wang, head of infrastructure investments at the firm, described to Infrastructure Investor as a “very niche” strategy. This involves the purchase, refurbishing, upgrading and expansion of brownfield district energy assets (combined heat and power projects) in Greater China and then exiting them over a period of seven to ten years with a target internal rate of return of 18 percent.
It has just made its first investment – the size of which was undisclosed – in a combined heat and power plant based in Chengdu, the capital of Sichuan province.
Wang says the opportunity for the fund has arisen from the ever-increasing number of industrial parks being launched in China – especially in the inland regions rather than the more saturated coastal zone – all with a need to access water and electricity. There is also demand for steam from companies in sectors such as chemicals and pulp & paper.
So-called district energy asset operators provide cleaner and more efficient forms of energy to the industrial parks. Previously, individual companies within parks would tend to have their own (inefficient and highly polluting) boilers. These are increasingly being replaced by co-generation plants, which cater for an entire industrial park's energy needs while increasing efficiency and reducing pollution. This move to energy efficiency is backed by the Chinese government, which provides district energy asset operators with various stimuli and incentives.
Wang says that the firm has a pipeline of potential opportunities worth around €1 billion and that, therefore, the fund provides potential investors with a lot of transparency rather than being a blind pool. She also says these are exclusive opportunities as they are sourced by Dalkian, a division of France’s Veolia Evironnement and Electricite de France, which is the fund’s primary industrial partner.
Swiss-Asia is primarily known as a hedge fund and hedge fund of funds investor. Wang, formerly head of the private equity group at Deutsche Bank, joined Swiss-Asia last month.