Renewable energy projects are fast gaining momentum in infrastructure debt investing circles, according to Jean-Francis Dusch, head of infrastructure and structured finance advisory at EdRAM.
Dusch said energy exposure in the firm’s first infrastructure debt fund increased to 30% over the past few years.
'With time, energy exposure in the funds has become increasingly larger in line with our conviction, as we want to be part of the European energy transition.
'We have no particular restrictions in the sectors we cover, however, to date, we preferred to avoid investing in traditional coal power plants and rather focused on renewable energy.’
One example of renewable energy investments in Dusch’s portfolio is UK biomass power plant MGT Teesside.
The asset manager said it was a £1.2 billion transaction and is a part of a bigger European energy transition story.
‘It also has a strong sustainable development angle, as it is a project which creates a significant number of jobs in the UK, which is even more relevant in the post-Brexit vote environment.’
Another renewable energy refinancing project the team participated in was German offshore wind farm Meerwind.
‘The person in charge of energy projects within my team was involved in the first project financings for such renewable projects, so it made it easier for us to participate in the Meerwind transaction.’
Last year Dusch and his team also participated in a solar refinancing project in Spain. The team analysed the revised Spanish feed-in tariff regime to ensure the project could repay its debt under very low returns scenarios.
‘We usually use a P90 scenario to size the debt - meaning there is 90% probability anticipated cash flow will materialise - but we pay significant attention to the historical generation hoping it is closer to a P50 scenario which is against which equity investors will gauge the investment opportunity.’
Dusch is not shying away from uncharted territories and two years ago his team looked into the legal framework of Belgian care homes. This was to find a way to structure such financing solutions in a similar way to public-private partnership projects.
'We were probably pioneers in designing such a financing solution in 2015 enabling us to generate spreads well above 200 bps when social infrastructure PPPs in Europe priced in the low 100bps.
'This transaction was rated BBB by S&P and eventually we contributed to create a new sub-asset class within the infrastructure space,' he said.
Generally the EdRAM team prefers to look at transactions which are less like public offerings. This is one of the reasons why they have not invested in any projects related to the National Grid in the UK, for example.
He said investors often prefer more structured transactions, where his team can add value through its investment process, including risk analysis and mitigation, structuring and direct negotiations with the sponsors and developers.
‘We slowly focus less on investment grade, although we would want our portfolio to remain of strong credit quality. We also seek to invest in assets which are Solvency II infrastructure eligible. This is a key considerations for European insurance companies.'