Renewables foursome re-inforce sector’s appeal

“Copenhagen was certainly a disappointment,” says Tom Murley who leads HgCapital’s renewable energy team. “But the industry does not see it as a setback, at least not in Europe, as we already have legally binding agreements and trading mechanisms in place. So we don’t expect Copenhagen’s failure to result in major obstacles for our investments.”

Environmental investment is more than just a new trend. “With all the talk about the environment, it is easy to get caught up in the hype, but what we as investors ask ourselves is ‘does it make economic sense?’ For instance, we like to invest in companies operating in niche markets and have a particular interest in companies working with energy/resource efficiency, bio-gas, as well as industrial waste recycling which we believe to have much potential,” comments Iyad Omari from Frog Capital.

Environmental infrastructure clearly carries an attractive risk/return profile, and opportunities in Europe seem abundant and promising – at least in the medium term. “[HgCapital is] currently executing deals in Spanish solar PV, UK wind projects and Scandinavian wind projects as well,” Similarly, we expect that over the next 12-18 months, these sectors will remain attractive. In addition, we are starting to look at Spanish wind, Italian PV solar projects and French solar and wind projects,” says Murley.

That said, the sector is not without challenges. After all, debt availability remains an issue in the current markets. According to Murley: “individual banks are willing to hold between €20-50m in debt (individual or collective projects) which is better than last year when the figure was closer to €20-35m.” This is important as underwriting and syndication have not made a return and more often than not financing requires clubs of three to four banks. “We believe that executable transactions in the environmental infrastructure sector would have a total €150-200m debt (80% gearing) putting the total EV range at about €175-250m. Obviously, it will be less difficult to get the financing for quality projects and investors with an established track-record,” adds Murley.

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