PFA, Denmark鈥檚 largest commercial pension provider, is looking to invest some 鈧�5bn over the next five years to meet its target of a 10% allocation to alternatives, according to a senior portfolio manager at the pension investor.
Speaking on a renewable energy panel at IPE Real Estate鈥檚 Real Assets & Infrastructure conference in London, Jacob Lise Lyngsgaard said the task was an 鈥渋nteresting but also quite challenging鈥� mandate.
Lyngsgaard said PFA had historically been underallocated in alternatives, at around 2%, and that it was focusing 鈥渁 lot鈥� on renewable energy and infrastructure investments as part of its aim to increase its exposure to alternatives.
He said PFA had taken different routes to alternatives 鈥� through funds, partnerships and direct investment 鈥� and that the approach it opted for would depend on risk/return profiles and 鈥渨here in the world we are acting鈥�.
Asked what PFA looked for in a partnership with a sector specialist, Lyngsgaard listed experience, alignment of interests and 鈥渟kin in the game鈥�.
鈥淲e prefer to work with partners who also invest in the project themselves,鈥� he said, naming Dong Energy, WPD and Siemens as examples.
Michael Lewis, chief executive of E.On Climate & Renewables, identified the need for partners as a major trend, alongside that of a rapid reduction in returns.
He said the culture of an organisation was very important when forming partnerships, and that E.On looked for partners with the shared mindset of wanting to get a project built first and not one of immediately reaching for a legal solution to disputes.
鈥淭he good news is that we鈥檝e found plenty of partners like that,鈥� he said.
He said there had been a move away from the traditional utility model whereby one develops, builds and then owns a project for a long time, and that 鈥渨e don鈥檛 carry these assets forever on our balance sheet any more鈥�.
Instead, his company works with partners at an earlier stage 鈥� pre-construction, for example, or as part of a sell-down after construction.
Wolfgang Bischoff, head of global equity, energy finance at Siemens Bank, said Siemens was typically a greenfield project finance equity investor, 鈥渃oming in relatively early and seeing the transaction through to close鈥�.
Jon Boles, director at Real Investments, said there were conducive conditions for growth in renewable energy in Europe, citing factors such as competitive generation costs, strong political will (also increasingly in the US) and supportive regulation away from fossil fuels and nuclear power.
Winds of change
As moderator of the panel discussion, Boles raised the question of whether yields in the offshore wind market were adequately reflecting risks or if the reduction in yields over the past two years had gone 鈥渢oo far鈥�.
Siemens鈥� Bischoff said returns from offshore wind had fallen, but that risks had also come down.
Even though offshore wind 鈥渋s not a commodity or risk-free鈥�, the risks are much better understood, he said, adding that the industry had become more experienced and that 鈥渇laky鈥� players had disappeared.
E.On鈥檚 Lewis said there had been 鈥渁 sea change鈥� in the past two years in terms of the risk perception of offshore wind by investors, which had been caught up quite suddenly with de-risking developments from a technological/technical perspective.
He said time would tell whether this was overdone, adding that the market would price that risk correctly.
Lyngsgaard at PFA agreed that the industry had matured and been de-risked but warned that 鈥渁 lot of the good sites have been taken鈥�, which fuels a push further offshore into deeper waters.
