New $100m solar fund to target large-scale, “blue chip” solar assets

A new, $100 million renewable energy investment fund that aims to buy up established solar farms around Australia has been launched by Melbourne-based Impact Investment Group, with the backing of some high profile names including respected economist Ross Garnaut and the Lieberman family.

The Solar Income Fund, to be led by former Pacific Hydro chief and Clean Energy Council director Lane Crockett, and chaired by Garnaut, will target “blue chip” solar infrastructure assets, typically ranging between 1MW-30MW in size.

Not unlike the publicly traded Yield Co, which have become highly popular and effective investment vehicles among major global solar companies, IIG’s unlisted fund will only acquire fully operational solar farms, with long-term contracted or regulated off-take arrangements in place, which IIG says will be secured through “high credit quality counterparties” like Australian governments. It will take no development or construction risk.

According to a statement on Monday, the Fund has already secured exclusive rights to acquire $60 million of solar projects that are currently in various stages of construction and development, including the Karratha Solar Farm in WA and the Mount Majura and Williamsdale solar farms in the ACT.

These investments and others are expected to deliver investors stable, long-term cash returns, with a targeted pre-tax Internal Rate of Return of around 10 per cent, while also supporting Australia’s renewables sector at what Garnaut describes as a “crucial time.”

“This fund aims to provide attractive and stable returns to investors with positive social and environmental benefits,” Garnaut said in a statement. “Bold steps by investors like IIG will support Australia’s utilisation of its opportunity to be a superpower of the low carbon world economy.”

According to IIG chief Chris Lock, bringing Garnaut and Crockett in to oversee the push into renewables was important for the company, which has traditionally focused on the commercial real estate market.

Lock said Crockett, who had come on board at IIG last October, had been instrumental in securing the seed investments, while Garnaut was lending invaluable expertise, largely in the area of corporate governance.

“The investor appetite overwhelming (in renewables), to be honest,” Lock told RenewEconomy in an interview. “There is an overwhelming desire to invest in renewable energy, full stop. And a strong desire to invest in solar in Australia.”

Lock said renewables investment in Australia could currently be divided into two major classes: those supported by the government, and those that were stacking up on their own merits.

Most of the Fund’s seed projects, he added, fell into the former category, having been supported, at some stage of their development, by governments. But he expects future investments – in remote and off-grid solar projects, where the solar replaces diesel, for example – will stack up, economically, on their own.

“The cost of delivering large-scale solar projects is just going down and down,” Lock said.

“We’ve really got an asset class here that is a really predictable source of energy, and a really predictable cash flow over the next 20-30 years – not unlike fixed income or bond-like investments.

“A lot of institutional investors have wanted to invest in renewable energy, but haven’t had the opportunity.

“Our hope is that (the Solar Income Fund) is going to introduce a whole bunch of first time investors into renewable energy,” he said.

“And we’re hopeful that this is the gateway to a whole lot more investment in the sector.

“Given the events of the past few years, everyone more cautious,” Lock added. “But our general sense is there is increased confidence in regulatory risk.

“And part of that confidence is that we’re moving rapidly towards a time where the metrics (for solar projects) stack up on their own.”