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Equity fund: Green has become a guarantee – not a risk

January 30, 2017

As published in 

Peter Dickson is interviewed by SØREN SPRINGBORG for Energy Watch EU


INTERVIEW: Just a few years ago, capital fund Glennmont Partners was sold on the idea that investments in sustainable energy were a safe bet. Today, investors are lining up, while conventional energy is seen as a direct road to losses

The view of London’s financial district from Glennmont Partners’ meeting room on the 12th floor does not disappoint. Meanwhile, the light, elegant furniture, the polished conference table, and the freshly-brewed cappuccino brought in by the assistant could just as easily make up the interiors at Goldman Sachs, HSBC, or Deutsche Bank.


Although, on the surface, Glennmont Partners is visibly an equity fund, there is still something different about this fund. At Glennmont Partners, which originally emerged from French major bank BNP Paribas but today is completely independent, the focus is to invest exclusively within renewable energy. Furthermore, the fund invests as an active development partner. That means that besides a team of financial experts, there is also a large team of technical experts employed to assess and manage the projects, in which the fund has invested approximately EUR 1 billion.


The fund has overwhelmingly invested in the UK and Southern Europe, while the largest investment areas have been solar power and wind turbines, combined with a little biomass in the UK. It is a geographically and technically-narrow investment profile. But one which has been closely followed, says Peter Dickson, founding partner and technical director of Glennmont Partners.


“Our investors expect that we are conservative. Until now, the technologies that have managed to get on the list have been onshore wind, solar energy, fuel plants based on biomass, and small hydro plants. These technologies are relatively cheap, and they have been in operation for a long time, there is a history, you can get reasonable guarantees, and there is a service unit in place. The conservative approach also applies geographically. Therefore our focus is West Europe, where we see stable regimes both politically and economically and where we have had feed-in tariffs for sustainable energy with a long-term horizon,” says Peter Dickson.


A safe bet

The fund’s customers are primarily institutional investors – largely pension funds. Since the fund was launched in 2008/2009, it has been with the sales argument that green energy was a stable investment in a world which was financially squeezed. “What we offered at the time was the opportunity to invest in a fund with a low risk and stable and competitive returns based on renewable energy. It must be remembered that at that point in time, above all others, renewable energy seemed to be the safest bet with guarantees of reasonable returns. Our strength was and is, that we are based on the fundamental need for security of supply,” says Dickson, highlighting that the world has changed much since – also within energy investments. “Renewable energy is about to make itself independent of regulation. The cost of renewable energy has declined noticeably while the industrial maturation of the technology has resulted in such a large capacity that it now seems like a one-way road is paved for sustainable energy. Among investors, there is much greater concern over the risk of stranded assets within conventional energy than there is a concern surrounding the risks of renewable energy.”


Over the last few years we have seen huge price declines on renewable energy. As an investor, how do you explain the trend and its sudden and rapid development?


“Solar is probably the best example. We are talking price declines of up to 85 percent over the past nine years. The reason the price has fallen so extremely is that huge sums have flowed to the industry in the form of investments, because the projects have been protected against price fluctuations thanks to feed-in tariffs. It is a little ironic, that the original subsidies which should have attracted investors and which have been costly for society as a whole, ultimately ended up maturing the technology and pressuring the price down on new projects, so that today we get entirely different, low prices which can compete without the help of subsidies. We see the same thing in offshore wind with the latest bids in both Denmark and the Netherlands. It could well be that customers feel that in a number of offshore projects that have been built in Northern Europe over the last 10–20 years, they have had to pay a very high price. However, thanks to these projects and the support given at the time, we now see offshore projects such as Borssele at prices which are far lower than would have been imagined just one or two years ago.”


As an investor and a project developer, are your demands for returns the same, although the price for energy is changing? What can you change, when you take on projects in an environment where the price on energy is declining?


“Firstly, all project proposals go through a thorough assessment covering financial risks, technical specifications, legal issues, and which takes into account how the project fits into the rest of our portfolio. We also use considerable time on dialogue with our suppliers. In our wind portfolio, we primarily have Nordex turbines, but we also have Gamesa, Enercon, and Siemens. It is critical for us to understand the strategic approach, which the individual wind turbine manufacturer has for the countries, we wish to invest in. We are not much for buying equipment from a manufacturer which does not already have a critical mass in the country, we are investing in. We must be sure that there is free access to necessary spare parts and that there is a kind of maintenance organization in place. That means that we are close to the management in the companies, which have technology that we use. This is important, because it strives to be a long-term relationship. At the same time, all of our projects, except one, have service agreements in place with original suppliers. We are looking closely at all opportunities to reduce costs without compromising on quality and predictability.”


2016 was a turbulent year, to put it mildly. Trump was elected in the US and the UK voted to exit the EU. Both have the potential to create huge consequences for energy policy. As an investment fund, can you hedge against these kinds of events?


“It is very difficult to take these kinds of macro events 100 percent into account. However our strategy is to bet on diversification – that is why we have invested in five different countries across four different technologies. We have clear barriers for how much we can invest in one technology or one country. We aim to select the countries where the regime is most stable and that means we end up in Western Europe.”


One of the countries is the UK – do you still consider the UK regime stable, even after Brexit?”


The climate and energy field is largely unaffected by Brexit. We still have the same subsidy schemes in place, we still talk about CO2 reduction targets of 40 percent by 2030. Meanwhile, the UK government has worked very diligently to confirm to the market that it will still welcome investment in the country’s energy sector. Obviously, in the wake of the referendum, we as a fund took a step back and considered how to position ourselves. But what has happened since has given us great confidence that the UK will seek the best possible conditions for the country’s renewable energy ambitions.”


You can read the full article here: Energy Watch EU

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