Glennmont readies itself for fast-changing market

On 15th September, we will reach the ten-year anniversary of the collapse of US investment bank Lehman Brothers. The mood on the morning in 2008 after the bank filed for bankruptcy was bleak, and we are still feeling the economic and political effects of this crisis now.

It is in this context that the forerunner of Glennmont Partners entered the world. The firm’s founders Joost Bergsma, Peter Dickson and Scott Lawrence formed the ABN Amro Asset Management renewables investment team in late 2007; registered it with the UK Financial Services Authority in June 2008; and launched it within four days of the Lehman collapse. In the immediate aftermath, the market froze as investors put off concluding new deals.

But this lack of investor appetite for renewables was relatively short-lived, as Dickson told us at our Quarterly Drinks networking evening in London last Thursday.

He said that, within six months of the Lehman collapse, investors were looking again to back renewable energy assets that used proven technologies and offered stable returns. This enabled the team to reach the €160m first close of their Clean Energy Fund in September 2009, and a final close of €437m in November 2010.

They then spun out Glennmont into a standalone business in March 2013, and achieved the €500m final close of their second fund in August 2014. The firm is now raising funds for a €600m third fund, of which it has raised more than a third. The first two focused on onshore wind, bioenergy, solar and hydro; and the third includes offshore wind too.

The company has invested in wind farms in France, Italy, the UK, and the Republic of Ireland; as well as solar in Italy and Portugal; and biomass in the UK. Dickson said Glennmont is sticking with the strategy of focusing on core European markets and on investments in the “tens of millions [of euros]”, but this could change in future funds.

“All three funds are based on contracted cashflows with targets underlying the assets that we invest in. By the time we come to fund four, I suspect the market will have changed considerably. There’ll be a lot of bilateral PPAs, there’ll be a lot of attention on storage and behind-the-meter added value to projects,” he said.

He said another challenge for investors to grapple with is the move by governments away from offering financial support to developers, even in the form of stabilising mechanisms, and that Glenmont’s promise of reliable cashflows means it cannot take on merchant risk. Its investors are typically institutions that have to achieved certain yields.

This could force the firm to move into markets outside Europe: “When you look at how things are going to go in the future, I think it’s hard to see how you can continue to have that old-fashioned scale and amount of money invested on the way things are going right now, and I think there will be a big shift going on in Europe,” he said.

The prospects in the UK are of particular concern. Dickson talked about how all of its funds are euro-denominated but that it can invest a set amount of money from each fund into projects in other currencies. It has historically invested this in projects in the UK, but Dickson said he saw less opportunities to invest in onshore wind due to the lack of UK government support for onshore wind in Contracts for Difference auctions.

“We would like to stay in the UK market because the UK market is innovative, it’s exciting, and there are always interesting deals to be done in the UK,” he said, but added that it wasn’t clear where these investment opportunities would come from in onshore wind. The prospects for deal activity are brighter in the UK offshore sector.

It is undeniable that the picture for renewable energy has changed drastically in the ten years since Lehman collapsed. Costs have fallen, wind is no longer a niche asset class, and governments see their role very differently too. Even so, with post-crash interest rates still at historic lows, renewables projects can continue to offer attractive and stable returns at an acceptable level of risk for risk-averse institutional investors.

It’s just that firms like Glennmont may have to scour new places to find those returns.