Themes of the Year: The rise and rise of energy transition funds

This year has seen the energy transition go from being a good idea to becoming an irrefutable necessity and fund managers were quick to jump on the bandwagon.

Out of a total 25 unlisted infrastructure funds with “energy transition” in their names, 11 were either launched or closed in 2022, according to Infrastructure Investor data, and €16 billion was sought or already committed to these 11 funds. This underlines the importance of the “energy transition” phrase for marketing purposes.

As a strategy, energy transition benefits from being wonderfully inclusive. It encompasses such varied fare as state-of-the-art digital transformation, plain vanilla roof-top solar, frankly enormous offshore wind enterprises and – a 2022 favourite – hydrogen, green and otherwise.

Unsurprisingly, then, 2022 became the year of the first dedicated energy transition mega fund, courtesy of Brookfield Asset Management, which in June closed its debut Global Transition Fund on $15 billion.

The trend towards ever larger energy transition funds was clear in our Q3 fundraising report where 8 out of 21 sector-specific infrastructure funds (38.1 percent) closing in Q1-Q3 were focused on renewables. These funds received $19.4 billion, or 69.5 percent, of the sector-specific funds raised.

With 2023 expected to see the launch of Copenhagen Infrastructure Partnersfifth flagship fund, for which it’s targeting between €12 billion and €15 billion, it’s clear that energy transition mega funds will have a role to play in next year’s allocations as well.

2022’s notable energy transition funds

In other developments this year, Blackstone raised $2 billion for its Energy Transition Partners IV fund and hopes to secure another $4 billion by mid-2023 to reach the $6 billion target. The fourth flagship fund demonstrates how the times have changed as its predecessors’ strategy included oil and gas investments, and the fund began its life without the “transition” moniker.

Copenhagen Infrastructure Partners launched an Energy Transition Fund in 2021 which closed, oversubscribed, on €3 billion in August this year. Apart from looking to invest in advanced biofuels and carbon capture, this fund will invest in another energy transition darling, namely Power to X, or PtX, technology. One of the Xs is hydrogen.

Mirova’s Energy Transition 5 fund closed in September with €1.6 billion in commitments, well above its €1 billion target, and a riskier-than-usual strategy. And in March, US-based Hull Street Energy closed its second fund, Hull Street Energy Partners II, on $1.13 billion.

Finally, the first pure-play hydrogen fund, Clean H2 Infra Fund by Hy24 – a joint venture between Ardian and FiveT Hydrogen, closed in October 2022 with €2 billion in commitments. It remains to be seen whether hydrogen as an asset class can launch further funds on its own; more likely, based on recent fund launches, investment in hydrogen will be one of several flavours in upcoming ‘energy transition’ strategies.

The funds focused on energy transition are mostly closed-end, but some are embracing open-end strategies. In total, there have been 36 new open-end infrastructure funds since 2017; of these, 11 are evergreen energy transition funds.

One such fund is the Ardian Clean Energy Evergreen Fund which launched in April targeting €1 billion. This fund also demonstrates that the move away from fossil fuels is branded in more than one way across the globe, with ‘clean energy’ preferred outside of Europe and ‘green’ funds in vogue everywhere, particularly with smaller players.

It is said in the Nordics that ‘a darling child goes by many names’. So, indeed, it seems to be with energy transition funds.