Ahead of its launch, Oldrik Verloop discusses Aquila Capital’s new €750 million Energy Transition Infrastructure Fund (ETIF), which will invest in energy infrastructure assets needed for Europe’s energy transition.
The Energy Transition Infrastructure Fund (ETIF) will build on Aquila Capital’s previous funds, which include over 2.2GW of renewable energy generation assets across Europe.
At the time of going to press, Aquila Capital has invested in 1.6GW of wind, mainly onshore, 839MW of solar PV and 480MW of hydropower.
The wind assets are mainly situated in Finland and Scandinavia, the solar PV assets are mainly in Germany and France, as well as Portugal, while the hydro assets are mainly in Norway, with some in Turkey.
Energy consumption is increasingly being met by variable forms of renewable energy generation and that in turn is driving investment in energy transportation and energy storage assets, which will also be the focus of Aquila’s new fund.
ETIF will launch as a Luxembourg-based reversed alternative investment Fund (RAIF) with a target volume of €750 million and a term of 12 years. The target net internal rate of return (IRR) is 8-10% annually, which is similar to some funds focusing purely on brownfield – already operational – renewable energy assets.
Between 60-80% of the ETIF fund will be made up of predominantly greenfield renewable energy generation project investments, which will also include offshore wind, while 20-40% will focus on distribution assets. In terms of the renewable energy generation projects.
Verloop, who heads Aquila’s international client-related activities, says: “Renewable energy generation plants will make up a
large portion of ETIF because the energy transition still hinges very much on the continued build-out of renewables. The average equity ticket of €50-70 million reflects our positive outlook for such investments as well as our transaction track record and sourcing capabilities.”
Interconnectors and district heating count as energy transportation projects, while energy storage investments will be based on proven technology, such as battery energy storage systems.
“Battery storage investments are likely to be lithium ion based. However, given the rapid technological development in the battery space, and the fund’s five year investment period, we won’t be categorically ruling out other technologies.
“Apart from battery storage, ETIF is also likely to consider investments opportunities in pumped hydro energy storage,” says Verloop.
Demand for energy storage is expected to increase exponentially to 2030, according to predictions by Bloomberg New Energy Finance (BNEF), with the UK and Germany expected to account for the largest sources of demand from Europe.
Verloop says: “When we talk about energy transportation infrastructure, we are looking at smaller interconnectors and also district heating. These enable us to take a larger equity stake. The big interconnector projects tend to be highly regulated and entail lower returns.”
For energy storage and transportation investments the focus will also be on greenfield projects.
Verloop says: “The thinking behind focusing on greenfield projects – and that does not mean ruling out brownfield assets entirely – is that we see an appetite among our investors to invest where these funds will have an impact on the energy transition in Europe.”
He adds: “We are identifying projects that can enable more renewable energy generation within grids, ultimately benefitting energy consumers and users.”
Aquila Capital is talking to and working with technical partners, utilities and local municipalities. “In many cases governments do not have the funds to develop all of the decentralised and distributed grid infrastructure so there is an opportunity for public-private partnerships to deliver these types of projects,” says Verloop.
There are different drivers, depending on markets. “In countries such as the Netherlands, Sweden and Norway, there is a move away from building new homes, apartments and other residences heated by natural gas, which is creating a demand for district heating.”
Like Aquila Capital’s predecessor renewable energy fund, ETIF will have a geographical focus that includes continental Europe and the Nordic countries, but also with possible additional investment opportunities in the UK and in Central and Eastern Europe.