Why is Global Infrastructure Partners now a key player in the global wind industry?

Global Infrastructure Partners and its chairman Adebayo Ogunlesi are shaking up the wind sector with big deals in Europe, Asia-Pacific and the US. [Note: This is an extended and updated version of a Wind Watch article originally published on 27th October 2017, to include analysis of GIP’s NRG deal last week.]

Never get emotionally attached. This is a mantra I stick to rigidly in my personal life – read into that whatever psychological flaws you like – and it works professionally too. I write about a lot of businesses and it is dangerous to like any in particular.

Still, I must admit a sneaking respect for Global Infrastructure Partners. This investor is headquartered in New York and has $40bn of assets under management. It tends to keep a pretty low profile – and then concludes another blockbuster deal. Stylish.

Last August, GIP bought a 50% stake in Ørsted’s 450MW Borkum Riffgrund 2 for €1.2bn for its $15.8bn GIP III fund. This followed a €780m deal for a 50% stake in Gode Wind 1 in 2015. The offshore wind sector in Europe has proven attractive for large institutional investors, and these were the first of GIP’s major deals in the industry to grab our attention.

In October, it went even bigger than those two by announcing that it was buying the Singapore-based developer Equis Energy for $5bn, including $1.3bn of assumed liabilities, also for GIP III. This deal was in conjunction with the Canadian pensions giant Public Sector Pension Investment Board (PSP Investments), the Chinese state-backed CIC Capital Corporation, and some other unnamed partners.

This deal closed last month and was the largest corporate takeover in renewables. It is set to give GIP and its partners platform from which to grow in Asia-Pacific.

And now GIP has followed up with another big deal for GIP III. It was revealed last week that it was set to pay just under $1.4bn for NRG Energy's development and O&M arms, and its 46% stake in NRG Yield. In total, GIP has so far invested $9bn equity in the renewables sector, including 8GW of operating assets, and has 14GW of assets under construction. This deal is set to close in the second half of 2018.

So what can these latter two deals tell us about GIP’s strategy?

Lets’s start with Equis. When this deal was announced, its size took us by surprise because Equis Energy does not have a global reputation – but it should. Equis is the largest independent power producer in renewables in the Asia-Pacific region, with a portfolio of more than 180 assets totalling over 11GW in the wind, hydro and solar sectors. This includes completed projects and those in development.

Its low profile is partly due to its age. Equis Energy was set up in 2012 by private equity group Equis, which was itself founded in 2010 by former executives from Macquarie, and even before the GIP deal had attracted a none-too-shabby $2.7bn. It is active in Australia and Japan, as well as India, Indonesia, the Philippines and Thailand. This means it should be a good platform for GIP to expand in the region.

When originally announcing the deal, GIP chairman and managing partner Adebayo Ogunlesi has said Equis was a “unique success story” in “one of the [world’s] most promising renewable energy markets”.

And, in our view, one of the key strengths of Equis is its diversity in terms of technology – wind, hydro and solar – and geography. This means that it is not over-exposed to one market in case of unwanted political or economic shifts.

This is just as well given what is happening in key markets in the Asia-Pacific region. In Australia, the government in October rejected plans for a clean energy target in favour of a ‘national energy guarantee’ that favours sources that those in key roles in government sees as more reliable. In other words, it is a bung for big coal, and has emboldened Abbott and his coal cronies to seek more cuts to renewables subsidies.

Meanwhile, Japan has given uneven support for renewables, in spite of the Tohoku earthquake and Fukushima nuclear disaster in 2011 that pushed clean energy higher up its agenda. Since then, solar has enjoyed strong support and installed solar capacity grew from 3.6GW at the end of 2011 to 42.8GW at the end of 2016. Wind hasn’t, growing from 2.5GW to 3.2GW in the same period.

And low prices in competitive tenders in India have destabilised renewables there too, with states refusing to sign power purchase deals agreed at far higher prices.

This shows there are promising pockets of activity for investor in the Asia-Pacific region, and also that a canny investor would be wise to go in with a diversified platform that isn’t solely reliant on support for wind. That is what GIP and its partners have got with the Equis deal – as well as gaining a higher profile in wind to boot.

We can see parallels here with the NRG deal, which was announced last week. GIP is looking to use the platform offered by NRG to take a proactive stance in the North American market, and the three divisions it is acquiring will enable it to do so. These three divisions are all set to sit within its GIP III fund.

By buying a 46% economic interest and controlling stake in NRG Yield, GIP now has a project portfolio that was the largest by installed capacity of any ‘yieldco’ in the US market; and the second largest by enterprise value and market capitalization. NRG Yield’s portfolio totals 5.1GW in wind, solar and natural gas, of which 3GW is in wind.

GIP is also acquiring NRG Energy’s operations and maintenance services arm, which manages projects totalling 2.4GW; and its development arm, which includes a 6.4GW development pipeline. This gives GIP an interest in wind that covers projects at all stages of the development lifecycle, from early-stage to completed schemes – and a strong platform with which it can expand in North America.

Ogunlesi said last week that continuing to grow the NRG Yield portfolio was among GIP’s priorities: “We look forward to working with management to develop new renewable generation assets and… are also excited about the opportunity to grow the value of NRG Yield, which allows public market investors to access attractive investments in renewable energy.”

This could well include more buyouts. GIP has emerged as one of the most active institutional investors in wind in the last year, alongside the likes of BlackRock and Brookfield Asset Management.

However, we also saw last week that GIP is specific about the types of renewable energy assets that it wants on its books. The other big yieldco transaction announced last week was the $1.2bn acquisition by Brookfield, via its recently-acquired subsidiary TerraForm Power, for Spanish yieldco Saeta Yield. This deal involves the sale by GIP of its 24% stake in Saeta Yield.

This deal tells us that GIP is not pursuing a large portfolio at any costs, despite how the huge Equis and NRG deals might look. Saeta Yield owns a 1GW portfolio, with 777.5MW of that made up of wind farms, but most of that is in Spain (538.5MW) and Portugal (144MW). These are not markets that offer huge growth potential, and so it makes sense for GIP to sell out and focus on the markets where it sees most growth: Asia-Pacific, offshore wind in Europe, and the US.

Is that it for now? We don’t think so. GIP has a $15.8bn fund to allocate and is keen to make renewables including wind a large part of that. Yes, it might want to take a breather after recent activity – but we wouldn’t be surprised to see one or two more blockbuster deals this year, and potentially expansion into other regions too.

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Do you have a view on the rise of mega-funds on the wind sector? Let us know in the comments.