New partnership targets investment in European hydropower infrastructure

Out-Law News | 16 Jul 2014 | 3:13 pm | 1 min. read

A targeted €500 million is set to be invested in the acquisition and development of hydropower plants in Europe, through a partnership formed by Dutch pension fund asset manager APG Asset Management and alternative investments manager Aquila Capital.

Hamburg-based Aquila Capital has been commissioned to establish an investment vehicle dedicated to hydropower infrastructure, which APG said “aims to make investments in operational plants and develop new projects across Europe”.

APG, which will commit €250m to the venture, said: “Considering the capability to make use of debt financing, the total enterprise value of the investments is projected to amount to up to €500 million. Aquila Capital will provide the operational management of the hydropower assets as well as portfolio management services to the partnership.”

According to APG, Europe’s installed hydropower capacity is mainly concentrated in Scandinavia but “Turkey is seen as having the greatest future potential for energy generation”.

APG’s managing director of global real estate and infrastructure Patrick Kanters said: “APG puts a lot of effort in finding infrastructure investments with high-sustainability characteristics. Hydropower is the most efficient of all main energy sources and ticks the right boxes for us in terms of the risk-return profile and the high cash flow visibility, as well as its strong sustainability profile.”

Kanters said: “There are relatively few companies with the expertise and industry networks to access the best opportunities in the sector, which is why we have teamed up with Aquila Capital.”

Oldrik Verloop, who is responsible for the partnership at Aquila Capital, said: “Hydropower is an attractive proposition for investors looking for stable long-term inflation protected yields to match pension liabilities. The key challenge in accessing these types of assets is the ability to bundle enough volume in transactions to create sufficient scale to appeal to institutional investors and that is where Aquila’s experience in the hydropower sector is of prime importance.”

According to the European Renewable Energy Council (EREC), as of 2006 there were nearly 21,000 small hydropower plants (SHPPs) across EU countries. EREC defines small hydropower by installed capacity of up to 10 megawatts. EREC said if EU candidate countries as well as Norway, Switzerland, Bosnia & Herzegovina and Montenegro were included, the number of SHPPs increased to a total of nearly 23,000.

The Brussels-based pan-European representative association for the electricity industry in Europe, EURELECTRIC, said in a report published in 2013 that hydropower is “a key European asset... yet its promising and multifunctional role as an enabler of the energy transition remains insufficiently understood among Brussels-based policymakers”.

EURELECTRIC said: “Hydropower is a highly efficient and competitive electricity generation technology that lies at the heart of the renewable energy family and currently provides 11% of Europe's electricity. With its flexible capability to ease imbalances between demand and supply... it will become even more important as the share of variable generation from renewables such as wind and sun increases.”