HgCapital Focusing $714 Million Fund on Scandinavian Wind Farms

HgCapital LLP, a private-equity firm, is shifting the focus of its second clean-energy fund of 542 million euros ($716 million) to wind-power operations in Scandinavia as it targets markets requiring lower subsidies.

The fund will invest in onshore wind in the region, where larger facilities can be built with positive resources and low subsidies in triple A-rated countries, Tom Murley, renewable energy chief at HgCapital, said in an interview in London. It isn’t currently studying solar photovoltaic projects, he said.

“There are a lot of projects in Scandinavia looking for construction capital,” he said. “There aren’t many investors who take construction risk and can write large equity cheques.”

Norway and Sweden began a common green-certificate market a year ago to spur renewable investment. Electricity suppliers must get a certain portion of power from low-carbon sources or by purchasing green certificates that have a tradable value. Allowing renewable certificates to trade freely between the countries helps them meet clean power targets at lower cost.

HgCapital plans to build 300 to 400 megawatts of wind in Sweden and Norway and 200 to 300 megawatts in Ireland. The fund doesn’t chase tariffs, instead investing in areas that have the best resources, Murley said. That cuts dependence on subsidies.

Sweden wants half of its energy to come from renewables by 2020, up from 47 percent now, and Norway is aiming for 67.5 percent. EON SE said Feb. 8 it planned to build hundreds of megawatts of wind power in the two countries. Norway’s low population density and strong winds allow larger and cheaper projects than in Germany or Poland, and EON is planning nine operations with capacity totaling as much as 1,500 megawatts.

‘Gravy Train’

While investing its second fund, HgCapital is also shedding assets in the first, 300 million-euro fund, including Spanish solar projects, smaller French wind farms and a wind development in Sweden. It already sold its U.K. and Irish wind projects and aims to offload remaining assets in 12 to 18 months. The process is harder than before the economic crisis as buyers are cautious and it takes longer to build and sell assets, Murley said.

HgCapital will probably return to the market to raise funds in the next two to three years and may venture outside Western Europe as some areas are saturated with renewables, he said.

Pressure on the industry to deliver at lower cost will rise in the next five years as the “gravy train” of subsidies comes to an end, Murley said. A “vast amount of money has been lost in the sector, making it a harder and harder sell, especially with the regulatory changes in Europe,” he said.

As a consequence, Murley expects to see a further downward trend in fundraising for clean technologies this year.

Countries have to stop making retroactive tariff changes, the industry has to cut reliance on subsidies, and investors need to see positive returns to spur investment, he said.

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