The newly formed UK Infrastructure Bank has made its first fund commitment by agreeing to match investments up to £250 million ($331 million; €294 million) in NextEnergy Capital‘s latest fund.
NextEnergy unveiled plans to launch NextPower UK ESG last year with a £500 million target and a hard-cap of £750 million. The fund targets UK-based, unsubsidised solar projects and is seeded with two operational sites, including a 75MW facility, which is the UK’s largest operating solar project. The other site has a capacity of 40MW.
NextEnergy has been warehousing the projects outside of the fund until they became operational earlier this year. It will continue this strategy for future assets within its secured pipeline, with the aim of the fund reaching 1GW of operational capacity. It is understood UKIB’s commitment will first target the projects, becoming a fund commitment that may build up to half of the vehicle’s target once the projects are transferred into it.
While UKIB, which began operating in the spring after being unveiled last year by the UK government, made its first investment in October with a £107 million loan to create a quay to service the offshore wind sector, this is the first “to leverage private sector involvement”, according to a statement from John Flint, chief executive of UKIB.
“UKIB did a lot of due diligence on us as a fund manager and on the fund itself. It’s great for the renewables sector to see this,” Shane Swords, managing director at NextEnergy Capital, told Infrastructure Investor.
Swords added that the 10-year fund will be targeting gross unlevered returns of 6-8 percent, with a cash yield of 4-6 percent. Swords said he expected institutional investors to follow suit soon.
“We have investors at different stages of due diligence. Our main focus has been on securing this cornerstone commitment, but we’ve also been helping investors with their due diligence,” he explained. “I can see a lot of international investors coming into this. We have some looking at it at the moment.”
The fund differs from NextEnergy’s London-listed vehicle, NextEnergy Solar Fund, which primarily targets subsidised UK projects and which has grown to a capacity of nearly 900MW since its launch in 2014. NextEnergy’s other fund in market is the NextPower III ESG vehicle, a 2017-vintage vehicle targeting $750 million and which recently secured further capital to reach $622 million.