Greencoat Taps $63 Billion Wind Assets in U.K. IPO
Greencoat U.K. Wind Plc, planning Britain’s biggest renewable energy IPO, expects to tap a 40 billion pound ($63 billion) pool of assets that will drive payouts to shareholders almost triple what bonds yield.
The initial public offering aimed at raising 205 million pounds next month marks the first time an infrastructure fund will list on the stock exchange to buy power plants driven by low-carbon fuels, said Laurence Fumagalli, a partner at Greencoat Capital LLP, which manages the fund.
The IPO would help the U.K. government lure investment for its aging electricity network as funding dries up from traditional sources such as private equity and bank lending. For investors, Greencoat intends to pay a dividend of 6 percent on each 100-pence share, beating yields of about 2.2 percent for 10-year U.K. government gilts.
“The government is trying to mobilize up to 100 billion pounds into this sector in the next 10 to 15 years,” Fumagalli said in an interview in London. “This is not going to come through the private equity route.”
Greencoat already has agreed to buy wind farms from RWE AG and SSE Plc. Utilities and developers may put similar facilities worth as much as 40 billion pounds in operation, under construction or in approvals in the next few years and that the fund is a natural buyer for some of those assets, said Stephen Lilley, partner at Greencoat Capital.
Venture capital and private equity slashed investment in renewable energy 34 percent to $5.8 billion last year, according to data compiled by Bloomberg. VC firms traditionally seek to realize gains from their investments within seven years, and wind farms often operate for 20 or more.
“The 10-year closed end structure was born in the private equity world and was perfectly suited to that, but it’s utterly unsuited to long-term asset ownership,” Fumagalli said. “Listed investors are the natural long-term owner of these assets. If you look at the kind of yields from other asset classes, the 6 percent inflating yield that we’re intending to pay looks very attractive.”
Greencoat’s strategy matches the tenor of wind assets with its fund, which doesn’t have a time limit like many VC investments. It allows utilities to release cash by selling assets while giving investors a way to tap into renewables that doesn’t commit capital through time-limited VC investment.
That sort of structure may be duplicated elsewhere in the coming years because it’s attractive both to investors and industry, said Richard Simon-Lewis, senior director for Lloyds Banking Group Plc’s team working on project finance for renewables.
“The IPO being progressed by Greencoat Capital is an elegant solution, and something that is likely to be replicated,” Simon-Lewis said.
With predictable and low operating costs, wind assets are more suited to ownership through a fund than traditional forms of generation, Fumagalli said. Returns from natural gas and coal plants depend on the cost of the fuel, which isn’t as easy to predict as output over the course of a year from wind turbines, he said.
Funds like Greencoat tap a deeper pool of capital than VC firms that helped start the renewables industry. Equities typically account for 40 percent of the resources in pension funds, with bonds making up much of the rest. VC and PE investments take a smaller portion, Fumagalli said.
The British government supports Greencoat’s IPO and plans to take shares worth about 50 million pounds through the Department of Business, Innovation and Skills. Prime Minister David Cameron’s administration has a target to get 30 percent of its power from renewables by 2020, up from about 12 percent now.
The sum is part of the 3 billion pounds of state funds allocated to the U.K. Green Investment Bank set up to spur low- carbon infrastructure, a BIS spokeswoman said by phone. Greencoat approached the government about the investment in 2011 and developed it with a team at BIS before the European Commission granted the GIB approval to operate on Oct. 17, according to both BIS and Greencoat officials.
Greencoat hasn’t disclosed a target for how many wind farms it will acquire or the value of investments it will make after the IPO. Other investors such as pension funds and renewable asset owners will compete with Greencoat for those assets, Lilley said.
“As an illustration, even if the fund were to grow and be a billion pounds in size by then, that would be only 3 percent of the market,” Lilley said in an interview.
SSE, based in Perth, Scotland, agreed to sell four wind farms for 140 million pounds to Greencoat, with as much as 43 million pounds of that to be invested in the IPO. RWE Innogy, the German utility’s renewables unit, will sell 49.9 percent in its Rhyl Flats offshore park to Greencoat and the Green Investment Bank, along with shares in another venture.
Greencoat agreed to pay 1.8 million pounds a megawatt for the onshore wind parks, which the company said was in line with market prices.
“The utilities have been building and developing these assets for the last decade. They’re looking to sell out of some of their existing asset fleet and recycle the capital so they can build more capacity,” Fumagalli said.
The Greencoat IPO is the biggest for the U.K. wind industry after turbine manufacturer Clipper Windpower Ltd. listed on London’s Alternative Investment Market in 2005, raising 75 million pounds. Developer Renewable Energy Generation Ltd. raised 25 million pounds in an IPO that year.
Tim Ingram, former chief executive of Caledonia Investments Plc, will be chairman of the company board. William Rickett, former director general for the U.K. Department of Energy and Climate Change, is also on the board. He left the department before the fund’s concept was created, according to an e-mail from Richard Nourse, Greencoat Capital managing partner.
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