Temasek-backed Pentagreen, UK’s impact investor commit US$80 million to scale South-east Asia’s clean energy
The funds will be used to support the region’s pipeline of utility-scale solar and battery storage projects developed by ib vogt
[SINGAPORE] A debt financing platform that has Temasek and HSBC as its founding shareholders, as well as the UK’s development financial institution have jointly invested US$80 million to accelerate the deployment of renewable energy in South-east Asia.
The funds from Pentagreen Capital and the British International Investment (BII) will be used to support the region’s pipeline of utility-scale solar and battery storage projects developed by ib vogt. The latter is a global renewable energy company that entered South-east Asia in 2015 with its first project in the Philippines and has now expanded to a total of seven renewable energy plants across the region.
This initial injection of US$80 million aims to unlock about US$300 million worth of clean energy projects, with a total power generation capacity of about 260 megawatt peak (MWp), as well as 175 MW hours of battery storage, said Pentagreen, BII and ib vogt in a joint press release on Wednesday (Mar 26).
Speaking exclusively to The Business Times, both investors and ib vogt said that this financing structure is quite unique to South-east Asia, as it aims to fill a funding gap for greenfield projects in the region and hopefully attract more project financing.
Renewable energy projects in South-east Asia are typically funded through project financing, whereby the capital deployed is used to manage only a single project.
These projects are usually brownfield projects, or have reached a stage where operations can begin. Banks typically fulfil this role through senior debt financing, which usually has lower risk and sits at the top of a project’s capital structure.
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The US$80 million investment by Pentagreen and BII, however, would be injected directly into ib vogt, which will deploy these funds across a range of greenfield projects located throughout the region. Greenfield projects refer to those that are already committed to, but construction has not yet begun.
The first project to be supported through this investment is a 100 MWp solar power project in the Philippines. It will be funded via mezzanine financing, which is a form of hybrid capital that sits between senior debt and equity in the capital structure.
The aim is to enable the project to progress swiftly into construction and support the parallel deployment of senior debt from HSBC to the project.
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The developer is also looking to commence construction for two other solar projects with these funds: One would be another 100 MWp solar plant in the Philippines, and the other is 60 MWp solar project with battery storage in Indonesia.
While ib vogt has already completed renewable energy projects in these countries, David Ludwig, chief executive of ib vogt Asia-Pacific, said that these new projects are much larger, thereby requiring a lot more capital.
As pricing gets more competitive in these markets, having these funds invested directly into the company also allows them to have a more streamline financing structure, as they can deploy them across several projects, instead of entering in different project agreements.
“We’re also seeing an acceleration here in Asia. Before, it was one market active at the time... And now, ib vogt is executing projects in three markets at the same time. Each of those is in the range of (US$60 million to US$80 million) of funding requirements. Also, just the acceleration for us as a company, that is one big part,” said Ludwig.
Infrastructure financing in South-east Asia, being largely made up of emerging markets, have historically suffered a lack of investment from global private investors due to unattractive risk-return profiles.
While there is plenty of capital seeking exposure to renewable energy projects, the risk-reward disconnect has meant that capital has not been flowing into parts of the market where it is needed, noted Marat Zapparov, chief executive officer of Pentagreen Capital.
However, the risk-reward profile for the projects that ib vogt has committed to are deemed commercially attractive and able to generate returns, noted Rohit Anand, regional head for South-east Asia at BII.
“(The returns) support the cost of our financing as well as leave enough value for the shareholders of the company. So that’s what compelled us – that the quality of the projects and the profitability of the projects are adequate to support financing like this,” he said.
“The second reason for doing something like this is that the quality of the team and standards that they will follow are consistent with the way in which we want our portfolio companies to behave.”
Therefore, the debt facility is structured based on market terms, which means no concessional or philanthropic capital is involved.
Nevertheless, Anand categorised this sum of investment as patient capital, since the tenor of this debt facility is kept long enough to allow for these projects to be executed.
“That will give ample amount of time to the team to build, construct, possibly create value and monetise. And then it’s possible to even recycle the proceeds of the money,” he added.
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