Stephen Lilley, Partner, Greencoat Capital
Funds investing in renewables have had a tough time over the past few years. Portfolios were generally focused on growth, and the credit crunch took a heavy toll on a sector that was both cyclical and highly capital intensive.
At the lower end there have been successes amongst venture-capital style funds able to pick winners. But for investors looking at larger stocks the renewable strapline (often muddled together with CSR and ethical tick-boxing) always felt more like a straight-jacket than a strategy.
As the wants of the market tempered in the intervening years, capital preservation became the order of the day, and so followed the search for reliable yield.
In this new reality, where stable returns are hard to find, and where the spectre of inflation awaits us somewhere beyond the horizon, renewable generation assets are appealing.
And at the same time, the machinery involved has been maturing. Commercial scale wind turbines have now been turning for decades, solar PV almost as long. These are properly understood technologies which can provide an extremely stable, inflating income stream, with a very low correlation to the wider market.
We recognized this convergence of opportunity in 2011 and began working on a vehicle that would be attractive for three major stakeholders: investors, utilities, and the Government.
The Government needs a substantial quantity (over £50bn) of renewable generation infrastructure to be built in order to improve the UK’s security of supply, and to meet 2020 emissions targets. In reality, this requires the utilities to build-out the required new capacity as they are the only organisations with the necessary scale and expertise. Utilities have the capability to build, but lack the balance sheets to own all of these new assets. Investors have cash but are struggling to find secure real returns.
Our team has decades of experience in investing and financing wind farms, and our solution was a fund that would acquire, own, and manage unlevered operating UK wind assets, giving investors a 6% inflating dividend – and – real NAV growth. Utility partners can recycle the capital from sales and invest in building the next round of wind assets, and private capital is pulled into the sector so that the Government can hit its targets.
The IPO was a big success, and was heavily oversubscribed. With a pure focus, a heavyweight board, government backing and a lot of hard work and expertise, we created a company which sits in core institutional portfolios, not within alternatives. We have also been delighted by the reception from a substantial number of retail investors.
In the six months since our listing, three other funds following a similar strategy have entered the market, raising close to £1 billion in total. We are incredibly proud of our achievement and look forward to continuing to lead this nascent sector.