Canada’s state pension fund is backing a new Europe-focused renewable energy business that is promising to upend how projects are developed and financed. Renewable Power Capital (RPC) aims to bring together in-house expertise and a flexible approach to financing to promote projects that don’t necessarily have the long-term contracts in place typically required to get built, its CEO says.
“Our business model is predicated on the recognition that the renewable energy industry is going through big changes,” says Bob Psaradellis, a 14-year veteran of GE Capital. “Our model embraces a subsidy-free future and pioneers how institutional investors look at the space.”
RPC is majority-owned by the Canada Pension Plan Investment Board (CPPIB), which manages assets of C$458bn (US$358.23bn) on behalf of the state-run Canada Pension Plan. While CPPIB already invests in renewables projects in North America and offshore, RPC, which operates independently of CPPIB, will focus on European markets.
The novelty of its approach, says Psaradellis, is that RPC will not expect project developers to have secured long-term agreements to sell their power (whether through power purchase agreements (PPAs) or government-backed contracts-for-difference) or to have elements of their financing in place. This will allow the company to invest in projects at an earlier stage than most investors.
“In many cases, our preferred approach is not to have those things in place… because it delivers enormous value in terms of speed and certainty to our development partners, and it allows us to structure those PPAs and financing structures based on market conditions as we see them,” he says.
“It is not that we don’t think there isn’t a place for PPAs or for contracts for difference – but there are other ways to structure projects, with shorter-term hedging strategies in some of the deep and liquid markets in which we will play.”
A flexible approach to investment
Psaradellis adds: “It is a very flexible, market-driven approach which we think will differentiate us from other pools of capital.”
Large volumes of capital have flooded into renewable energy markets, says Dan Radov, a director at consultancy NERA, attracted by the stable cash flows offered by projects benefitting from subsidy regimes. This has forced down the yields they can earn in the sector.
“All investors, including institutional investors, are chasing additional yield by taking more risk,” says Radov. He describes RPC’s approach as “quite interesting” in that it allows the company to take varying levels of risk at the development end of the process and once projects are operational. “It allows them to fine-tune the risk level,” he says.
Initially, RPC will focus on the most mature renewables technologies – onshore wind and solar – in the Nordics and Spain. This is a question of initial resources, Psaradellis says, as well as an acknowledgement that those are the two European power markets most conducive to unsubsidised renewables projects because of their attractive wind and solar resources, respectively, and liquid wholesale electricity markets. It expects to make its first investments in early 2021.
The company will also invest in storage projects, both attached to wind and solar projects and on a stand-alone basis. “We think that having some flexible storage in the portfolio is prudent from a risk management perspective, as we believe that storage has a similar investment case [to wind and solar],” says Psaradellis. “We also believe it has synergies within our wind and solar portfolio.”
RPC will typically invest between $100m and $500m at a time and will invest across the entire value chain of renewables projects, from development to operation. This is in contrast to most other investors, which tend to favour investing at a specific point that meets their risk and return preferences. “Other players are funded by specific pools of capital that are looking for specific things and don’t have the same flexibility we have,” Psaradellis says.
That approach also relies on RPC’s capacity internally to develop, structure, construct and operate renewable energy projects, he adds.
Psaradellis also stresses the company will be a long-term investor, expecting to own and operate projects for 20–25 years.
Kingsbury to chair RPC
Shaun Kingsbury, the former head of the UK Green Investment Bank, has been appointed as chair of the new venture. “I am really keen on the flexible capital model,” he tells Energy Monitor. “We are at a tipping point in these markets, and we are going to move away from a model… of providing long-term pricing and long-term debt and letting it all run. Those markets are changing, and it is exciting.
“Obviously, the quality of the backer is an important part of setting this up,” he adds.
Bruce Hogg, head of power and renewables at CPPIB, says: “The business is well-positioned to create value through enhancing routes to market, driving more efficient commercialisation strategies and making improvements to assets’ capital structures as many European renewables markets transition towards a subsidy-free regime.”
CCPIB had around C$9bn of equity commitments to renewable energy globally as of the end of September 2020. This includes investments in development and operational assets across onshore wind, offshore wind, solar, hydro, storage and distribution, of which 4.5GW is operational.
In addition to his position as chair of RPC, Kingsbury has a number of other roles within the sector. He is a shareholder and director of The EV Network, which develops charging infrastructure for electric vehicles, a shareholder and chairman of CNG Fuels, focused on biomethane refuelling infrastructure, and is also working on a new venture with Conduit Climate Investment Advisors. Discussions with parent Conduit Capital are ongoing, Kingsbury says, although he declined to comment further.
Featured photo by Pablo Blazquez Dominguez/Getty Images.
Join Our Newsletter
Want more data and insights on the energy transition?
Sign up to Energy Monitor's weekly newsletter, The Switch, for deep dives, analysis and interviews delivered straight to your inbox.