Interview: Bakr Abdel-Wahab, Vortex Energy

The word ‘vortex’ gets a bad rap. You never hear about a vortex of love or hugs, do you? It’s always a tornado, hurricane or despair. Bleak!

Thankfully, there is one good ‘vortex’ out there.

In July, Vortex Energy achieved a $200m first close of its fourth fund, Vortex Energy IV, anchored by the Egyptian bank EFG Hermes, Abu Dhabi sovereign wealth investors, and Middle Eastern family offices. Vortex formed this fund to invest in a broader range of assets than its three previous fund vehicles.

A Word About Wind spoke to Bakr Abdel-Wahab, chief investment officer at Vortex Energy and head of energy and infrastructure at EFG Hermes Private Equity, to discuss the new fund, Vortex’s changing strategy, and risk.

Into the vortex

Abdel-Wahab joined EFG Hermes in 2010, and set up EFG Hermes platform Vortex Energy in 2014 with colleague Karim Moussa. Moussa is chief executive of Vortex and head of private equity and asset management at EFG Hermes.

The pair set up Vortex to enable investors from the Gulf region of the Middle East to invest in renewables. It closed three funds between 2015 and 2017:

• Vortex I (€170m), which bought a 49% stake in a 334MW wind portfolio in France from EDP Renewables in 2015.
• Vortex II (€550m), which bought a 49% stake in a 664MW wind portfolio in assets across Europe from EDP Renewables in 2016.
• Vortex III (£470m), which bought 100% of a 365MW British solar portfolio from TerraForm Power in 2017.

Vortex’s approach was to acquire the assets or portfolios and enhance their value through technical and financial asset management, including operational improvements or financial structure optimisations, before exiting.

Vortex invested €1.3bn in its first four years and Abdel-Wahab says it faced challenges with managing such a sizeable and diverse portfolio that covered multiple cashflow streams, subsidy and regulatory regimes, geographies and technologies.

“It’s not a straightforward achievement to carry out the entire investment life cycle – find the right assets and investment targets, raise the equity, raise the debt, execute and complete the M&A process, manage and oversee the portfolio operations, introduce value enhancement initiatives – and then exit with attractive returns and multiples,” he says.

But exit it did. The firm sold its stakes in the 998MW assets in Vortex I and II to JP Morgan Asset Management in December 2018 for an undisclosed sum. It followed this last September when it sold a controlling stake in Vortex III to Malaysia’s Tenaga Nasional Berhad at an enterprise value of £500m.

Strategic shift

Vortex Energy IV comes along at an interesting time, when the company is changing its focus from funds based on specific one-off portfolios.

Abdel-Wahab says the goal is to raise $750m to $1bn, of which it has already raised $200m, and that it will invest in the “energy transition at large” rather than pure wind and solar portfolios.

“This means everything that we’ve been doing but now with a wider mandate. In addition to wind and solar, we’re going to look at battery storage. We’re going to evaluate greenfield and development assets. We’re going to support IPPs [independent power producers] and green energy companies that seek further growth, and that already own assets and are providing energy and asset management services,” he says. “We don’t want to exclude ourselves from certain parts of the energy transition.”

This will include hybrid wind-and-solar projects, IPPs, and schemes in emerging markets – such as Chile, Colombia, Greece and Poland – that offer “interesting returns”. He adds that “plain vanilla” operating assets in established markets, such as the UK or Italy, are less appealing to Vortex because “the returns are too squeezed for our current mandate”.

Vortex is grappling with the challenge facing most renewables investors in 2021. The fierce competition for assets from institutional investors is making ‘vanilla’ assets less appealing, and so pushes firms like Vortex to take more development risk. That is on top of the additional risks caused by the move towards a post-subsidy regime.

“You’re starting to be a little bit more comfortable with certain risks that you wouldn’t have taken before, which is the merchant risk – selling electricity on the market – or greenfield risk, because you’re looking at companies with a development pipeline,” he says. “This is more challenging and is very different to valuing operating assets on the ground.”

Vortex Energy IV is a sign of a company evolving its strategy. But unlike a real-life whirlpool, Vortex will be selective about what it brings under its control.