Q&A with one of the world’s leading investors in green energy
Are renewable energy and sustainable investments now mainstream?
Northam: Absolutely. I’ve lived this industry for 27 years, and I can say with certainty that it’s no longer on the fringes. In the future we won’t use the term “sustainable investment”. It’s redundant. All investment will have sustainability at its core. Two things are driving that. The first is the global agenda to decarbonise, starting with energy and moving through heat and transport. The second is the model to decentralise energy production. Low-carbon technology models contribute to that solution.
Harrison: Totally right. The proof is in the numbers. In terms of volume, almost 50 per cent of global infrastructure transactions in the past five years were in renewable energy. The government is helping with policies and subsidies, but as we see with technologies such as electric vehicles, industry is moving even faster than governments in many cases. It is clear that renewables and green infrastructure are now mainstream.
It used to be assumed that responsible investing came with lower returns. Is that true?
Harrison: We are a financial institution that seeks appropriate risk-adjusted returns for Macquarie Group and our investors. In the current market, we believe that responsible investments in renewable energy can deliver what investors want without any discount for sustainability – far from it.
Northam: Our Energy Solutions business is a good example of how you can deliver environmental benefits, attractive financial returns and cost-savings. We offer finance to medium and large energy users so they can install energy-efficient technologies, such as solar power, LED lighting and battery storage at their facilities. We demonstrate the savings they can achieve on their energy bills. They repay us out of their savings. It is a model with global potential, used in the UK and United States, and increasingly popular in other parts of the world, including emerging markets.
In the future we won’t use the term ‘sustainable investment’. It’s redundant. All investment will have sustainability at its core.
The Macquarie portfolio is huge. What are the exceptional sustainable projects?
Northam: We have financed more than 100 projects and are passionate about all of them. But I would point to our role in offshore wind in particular. When we started out, the offshore wind industry was struggling to attract sufficient capital to fund its growth potential. As a financing model it works because of the long-term predictive nature of the revenue stream. These assets cost £1.5 billion to £2.5 billion to deliver. As a mechanism for attracting long-term capital to the industry, we packaged up a portfolio of offshore wind assets into a fund and offered it to long-term investors. We raised more than £1 billion from a collection of pension funds and a foreign sovereign wealth funds that hadn’t previously invested in the industry. It helped take the industry to a new level.
Harrison: That offshore-wind fund invests into a portfolio of assets that generate enough renewable energy to power approximately 900,000 homes in the UK. And projects such as Westermost Rough offshore wind farm off the Yorkshire coast supported larger turbines. We had the confidence to go from earlier vintage 3.6-megawatt (MW) machines to 6MW. Technology continues to improve with larger and more efficient turbines, and we now see 9MW in production. We really want to invest in the next evolution of the technology.
How are you innovating?
Harrison: Our UK Climate Investments business, a pilot project in partnership with the UK government, is helping foster the renewables revolution in emerging markets. In India, we entered a partnership with the UK company Lightsource and won a tender in Maharashtra state for 200,000 photovoltaic cells producing 60MW, generating enough clean energy to power 20,000 homes. It’s all part of that business’s objective to build renewables in emerging markets on a commercial basis, but also targeting a transformational impact on local communities and markets. I must commend the UK government for the vision to fund this kind of innovative venture to support long-term sustainable investment in renewable energy in emerging markets.
Northam: A recent example of innovation is the project we are funding in Sweden in a joint venture with GE. Together we are delivering Europe’s largest single-site onshore wind farm, just south of the Arctic Circle. At 650MW it’s huge. What is really noteworthy is a power purchase agreement, or PPA, with Norsk Hydro, where the project will supply electricity for Norsk Hydro’s aluminium smelters in the region. The deal provides Norsk Hydro with certainty on its future energy price while also providing a predictive revenue stream for the wind farm. Corporate PPAs are the model of the future, proving projects like this can be viable in a post-subsidy world.
How important is renewable infrastructure for Macquarie?
Northam: I was part of the Green Investment Bank when it was acquired by Macquarie. It was important that we found a new owner that enabled us to continue with our mandate, provided us with access to deep pools of capital, and gave us the ability to expand our green remit geographically and across the sectors we cover. In Macquarie we could not have found a better owner. We have led more than €1 billion of new investment already. We are delivering on everything we said we would.
Harrison: From the Macquarie side, one aspect that is sometimes overlooked is that infrastructure and alternative energy are not tangential to our company. They are core to Macquarie. We have deep expertise across the whole group. We’ve been in this sector for more than 20 years and are wholly committed to the future.
And what excites you for the future of green infrastructure?
Northam: A lot remains to be done with established technologies, such as wind, solar and waste to energy. Beyond that, I expect to see the acceleration of the distributed energy model. Batteries and energy tech are an essential part of a decentralised energy model. A focus on decarbonising heat and transport will drive developments in technology. Hydrogen could play a huge role in this, so it’s an area to watch.
Harrison: The entire energy landscape is evolving right in front of our eyes. The cost of production continues to fall making renewable energy even more competitive. And technology is constantly improving, whether that’s in offshore wind, with larger and more efficient turbines or blades, or new emerging renewable technologies. It’s an incredibly exciting sector and we’re privileged to be a part of it.
Macquarie Group is a leader in green infrastructure. It has invested or arranged investment of more than £20 billion in green energy projects since 2010. MIRA is a long-term owner and manager of assets on behalf of its investors. GIG is a principal investor specialising in early stage investments in new projects.