The Pipeline: Offshore PPA gone with wind, India’s NIIF troubles, US seeks energy chief

Price rises take US offshore casualty; tensions brew at India’s NIIF; and New York pensions gain additional firepower. Welcome to the The Pipeline, the start-the-week briefing for our valued subscribers only.

First look

Cloudy future: US offshore wind is having a moment (Source: Getty)

Avangrid throws contract to the wind
In November, The Pipeline brought you the news that Avangrid Renewables was looking to renegotiate the $72/MWh power purchase agreement for its 1.2GW Commonwealth Wind offshore wind project being developed in Massachusetts, deeming the project “no longer viable” due to electricity price increases and supply chain costs.

That request was rejected and shortly before the new year, Commonwealth Wind became the one of the first major casualties of today’s new realities for US offshore wind. “Simply put,” Avangrid said in a filing, “it is now far more expensive to construct the project than could have been reasonably foreseen even earlier this year”, and the PPA is insufficient to support financing.

As a result, the contract is being cancelled and Commonwealth Wind’s generation is “to be procured in the next solicitation” in April, in what Avangrid hopes will be a new and improved contract.

A casualty of its time, or a sign of trouble ahead for other projects?

HIH Invest joins the infra club
German real estate investment manager HIH Invest has decided to join the wave of its peers dipping their toes in infrastructure with the launch of its HIH Green Energy Invest fund.

The Article 9 vehicle is targeting €750 million and aims – with a somewhat ‘real-estatety’ phrase – for “an average net cash-on-cash return of 5.5 percent.” It is set up under Luxembourg law.

The fund will invest in photovoltaics and onshore wind power projects already in or close to operation. Ticket size ranges from €20 million to €120 million and Germany, France, Italy, and Spain are favoured. The life of the fund is 30 years.

To handle this new asset class, HIH has set up a team led by Kristof Krull, a former MD at renewable energy specialist WOC Asset Management.

“What makes this a reasonable target are not least the perfectly predictable revenues: Solar irradiation and wind force can be reliably forecast, power-purchase agreements have long terms, and the demand for electricity is growing,” said Krull in the launch announcement.

Given the volatile times we live in, The Pipeline applauds anyone who can find ‘perfectly predictable’ anything at the moment.

Indian government miffed with the NIIF?
India’s National Investment & Infrastructure Fund, which manages more than $4 billion of assets and has invested in a range of projects across transport, energy and other sectors, may be looking at a change of direction.

According to a Bloomberg report, disagreements have emerged between Indian government figures and NIIF leadership over asset allocation. The report stated that the government wants NIIF to “commit to ventures that drive capital into underserved sectors”, rather than buying commercial assets from other private equity firms.

NIIF CEO Sujoy Bose, who we last interviewed in 2019, is set to step down a few years before his term was due to expire, with Bloomberg citing this as evidence of frustration from the government side and stating that the identity of the new CEO, to be chosen early this year, will shape the direction of the fund.

Investors in the NIIF, including the Abu Dhabi Investment Authority, CPPIB, OTPP and AustralianSuper, will be watching with interest.

Essentials

2022 awards: Last week of voting!
We are entering the final week of voting for our annual awards. While there’s still some time before voting closes on Friday, 13 January 2023 at 12 midnight PT, why not set aside some time to cast your vote now – if you haven’t already – by clicking HERE?

We’re grateful for the hundreds of submissions we have received – the thousands of votes cast have made this year’s edition our biggest yet.

There are still plenty of tight races in play where your vote can make a difference. So don’t forget to cast it HERE.

Grapevine

“It should be a race against time, not a race against each other. It should be a race to the top, not a race to the bottom. Yet, there is a risk that the Inflation Reduction Act can lead to unfair competition”

Green with envy? European Commission president Ursula von der Leyen fears a Europe left behind in the energy transition

Who’s hiring

Democratic President seeks Manchin-placating FERC commissioner
The US Federal Energy Regulatory Commission is short a chairperson, so if you know somebody… just make sure they’re on good terms with Senator Joe Manchin.

The former FERC chairman, Richard Glick, served from December 2021 until last week. However, plans for his second term were decimated by the West Virginian congressman, who refused to hold nomination hearings for him in the Senate.

In the meantime, commissioner Willie Phillips is taking the reins. The four-person team now stands at an even split between Republican-nominated commissioners and their Democrat-nominated counterparts.

Manchin hasn’t publicly stated why he gave Glick the boot, but historically he’s clashed with the FERC commissioner for wanting to evaluate new natural gas pipelines for climate change and social impacts before giving them the green light.

‘Fossil fuels’ might come under ‘skills and interests’ in the next commissioner’s resume, then.

LP watch

Empire State wants a bigger slice of the private pie
The end of the year was marked by a decision from Governor Kathy Hochul’s office to up the ante on the ability of New York public pension funds to allocate capital towards private markets. Previously limited to 25 percent, city and state pension funds are now able to allocate up to 35 percent to infrastructure, real estate, PE, VC… you name it.

On the move, Bryan Berge, director of the mayor’s office of pension and investments and chair of the board of the New York City Employees’ Retirement System, stated: “Allowing greater diversification while holding portfolio risk constant is the smartest step we could take in today’s investment environment for our beneficiaries.”

According to a statement from the New York City comptroller’s office, the decision is projected to boost portfolio performance, increasing expected annual returns by $1.4 billion – all while keeping portfolio risk unchanged.

GPs should keep an eye out for a potential infra invasion from the already active Empire State funds. After all, NYSCRF sunk a hefty $750 million last May into the Brookfield Global Transition Fund.

Deals

Healthy exit: Ardian bids ‘ciao’ to Italian hospital portfolio (Source: Getty)

Ardian discharges HISI after 15 years
HISI – a hospital sector platform founded in 2007 and one of Ardian‘s first Italian infrastructure investments – has been sold to Italian GP F2i.

The platform manages around 900 beds across two hospitals operating in northwest Italy. For Ardian, HISI was just what the doctor ordered, with funds managed by it progressively acquiring 100 percent ownership over its 15-year tenure. In 2018, Dutch pension manager APG checked in via a secondary transaction.

HISI will be the fifth investment for the €516 million core-plus Ania F2i fund, which closed slightly oversubscribed last May, following investments in rail freight, airport, port and gas storage sectors. F2i has indicated it will pursue other Italian hospital investments.

With an ageing population and covid expected to be doing the rounds for a while, there are probably worse bets out there than hospital beds.

All I want for Christmas are deals
Some infrastructure managers seemingly had less time than others to stuff themselves with turkey and mince pies in late December, with three major deals announced that you may have missed.

First, Brookfield Asset Management announced an investment of up to $500 million into renewable natural gas and waste-to-energy business California Bioenergy, with the funds coming from its $15 billion Global Transition Fund.

Second, BlackRock formed a joint venture with US telecoms giant AT&T, named Gigapower, that will operate a commercial fibre platform serving customers outside AT&T’s “traditional 21-state wireline service footprint”. The deal marks BlackRock’s first in the fibre sector.

And last but by no means least, EQT Infrastructure announced on 28 December that the EQT Infrastructure III and IV funds have together entered into exclusive negotiations to sell 50 percent of its stake in water business Saur to DIF Capital Partners and PGGM. The latter will split EQT’s share equally if the deal completes.


Today’s letter was prepared by Zak BentleyBruno AlvesDaniel KempIsabel O’Brien and Anne-Louise Stranne Petersen also contributed.