Analysis: PensionDanmark wind deal reflects shift to long-term ownership

Institutional investors getting the message on renewable infrastructure

PensionDanmark’s acquisition of 50% of three US wind farms from German energy group E.ON is the latest evidence that institutional asset owners are getting the message on renewable infrastructure.

It’s a further signal that the ownership of renewable assets is starting to shift from project developers towards long-term holders, who can recognise the benefits of stable returns.

The announcement demonstrates how installed wind energy is becoming increasingly ‘investible’ for some of the world’s leading investment institutions.

And it also shows how institutional investors are prepared to partner directly with corporates when the right deal comes along. A willingness of both asset owner and corporate to work together on long-term projects can only be a positive development.

The DKK119.3bn (€16bn) Danish labour market pension fund said the deal, put at several hundred million dollars, was its first direct investment in US wind farms – and the first of possibly more deals with E.ON.

Fund Chief Executive Torben Möger Pedersen says its wind investments “provide a stable and attractive return at a level very similar to what you can expect from equities”.

But there is significantly less risk and exposure to the business cycle. He adds: “We will continue to focus strongly on investment of this type.”
The annual yield on this kind of asset is around 6%-8%, yet with “very limited downside risk”, Möger Pedersen told Bloomberg News.The fund is looking at infrastructure given low bond yields and the uncertain economic outlook. Indeed, it aims to put a further $2bn into infrastructure over the next five years.

“We will continue to focus strongly on investment of this type”

The E.ON transaction follows its acquisition of 30% of the Anholt offshore wind project for $680m with partner pension fund PKA. Other pension funds such as Dutch giant PGGM also actively engaged in wind infrastructure.

For E.ON’s part, it says the deal shows how attractive its infrastructure assets are for long-term investors. “Further transactions are likely to follow,” it says.

But the trend towards long-term ownership of renewables is not all one way. Just a few weeks ago it emerged that a consortium including the two largest UK pension funds had lost out on a major domestic renewables infrastructure project – the massive London Array wind project – to a group involving Barclays and Australia’s Macquarie.

The insurance industry, notably Germany’s Munich Re among others, is increasingly moving into renewable energy. In August the reinsurer bought three UK onshore wind farms in the UK from private equity firm HgCapital for a sum “in the low three-digit euro millions.”