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Dylan Foo, AMP Capital

AMP Capital powers up its clean energy investments in North America

AMP Capital sees good long-term opportunities in the North American power and energy markets as it looks to build a portfolio of infrastructure assets as part of its global infrastructure equity strategy. 

AMP Capital’s US infrastructure equity investments include Midwest fibre optics provider Everstream, the intermodal logistics company ITS ConGlobal, Chicago’s Millennium Garages, and Capistrano Wind Partners. Power and energy is one of four core sectors within the strategy and given that the US is the world’s largest energy market, AMP Capital is in no doubt that the risk/return potential for its investors is favourable. 

This is evidenced by a 50/50 partnership that the global infrastructure investment manager recently entered in to with Invenergy Clean Power LLC (“ICP”), to invest in Invenergy’s operating and development portfolio of natural gas-fired power generation facilities across the United States, Canada and Mexico. 

“Invenergy are a well-known and credible partner and the management team have been developing and operating power plants for more than 30 years, so they are a really strong partner from that perspective,” comments Dylan Foo (pictured), Partner & Head of Americas Infrastructure Equity at AMP Capital. “We bring investment capital to the table and the ability to provide global oversight. We have invested in US power before, and across the globe for that matter; we’ve invested in Ireland, Australia, the Nordics. 

“In the US, specifically, we’ve been looking for a portfolio of assets that provides protection via exposure to different power and energy markets within the country. Each of the markets has its own behaviour, its own supply/demand dynamics, its own risk characteristics, so by getting a portfolio which provides exposure to different markets, it provides better diversification and better suits our risk appetite.”

The investment provides AMP Capital access to one of the largest privately held gas-fired generation portfolios in the US and a rare opportunity to invest in a low-emissions generation fleet with scale.

AMP Capital and ICP will share joint ownership and governance of the new partnership, Invenergy AMPCI Thermal Power LLC, while Invenergy will maintain day-to-day management of the business. 

Infrastructure investment managers in the power space will typically look to partner or have contracts in place with operators. Foo says that AMP Capital’s preference is to partner because it ensures stronger economic alignment. In this new partnership, however, Invenergy are both AMP Capital’s partner and the operator of the assets. 

As a result, says Foo, “you have to make sure you manage conflicts of interest. You have to make sure the right audit trails are in place so that charges and expenses are being managed appropriately. In the power markets it is important to select the right partner. The first thing is to ensure you have an alignment of interests and that you share a common vision for the portfolio, whether that be growth and development of assets, when to monetize assets; so you need the same time horizon. 

“We’ve known Invenergy for a very long time and we have a good chemistry with them.”

ICP is an affiliate of Invenergy, an independent Chicago-based developer, owner and operator of power generation facilities internationally.  In addition to its extensive renewables platform, the Invenergy management team, through Invenergy and predecessor companies, has built and developed nearly 12,000 megawatts (MW) of thermal facilities over the past three decades.

With respect to the portfolio, it is comprised of seven operating plants with net capacity of 2,680 MW in the US and Canada. One facility is under construction in Pennsylvania, and there are two late-stage development projects in Mexico. The portfolio also includes an extensive early to mid-stage development pipeline in the US and Mexico.
“One of the things we’ve been looking at with ICP is to develop new plants across North America and part of this strategy is to gain exposure, in a measured way, to Mexico’s power market. Mexico has seen a lot more interest among traditional infrastructure and power funds and has become a well established market. The benefit of having a large portfolio based in the US is that we can take selective exposure in emerging (energy) markets like Mexico. We wouldn’t be likely to go into a large single asset in Mexico on its own,” explains Foo. 

Unlike other regions of Latin America, as an OECD country Mexico is a relatively well-established energy market. Investors can get energy and capacity contracts for 15 to 20 years, and harvest a slight premium on investments because of the higher risk involved. 

“If you look at the US power market for contracted assets, the reality is they are long-term contracted operational assets that are trading at single digit IRRs,” says Foo. “As a value-add manager, we are looking for returns north of that. To get that, you need to take some risk and have exposure beyond core assets. Mexico is not high on the risk spectrum, as compared to some emerging market power markets, it is a pretty solid market with a lot of active players, but it is a higher risk market than the US.”

He believes the 50/50 partnership in place with ICP offers an excellent entry point into a highly attractive sector, due to the calibre of Invenergy, the quality and diversification of the portfolio, and the growth prospects of the development platform.

AMP Capital is no stranger to the broader US infrastructure market, having deployed over USD1 billion over the last few years. With coal-fired and nuclear retirements likely to continue in the US, there will still be requirements for base load generation, which in the main will likely come from natural gas-fired generation but also, increasingly, the energy mix will come from an influx of renewable sources.

California introduced legislation to have solar panels on every new house that gets built. And while the renewables push continues to work its way into the broader power markets, it is not sufficiently reliable to provide base load capacity. 

“That said, we are seeing improvements in storage technology. We’ve a small investment in Australia in rooftop solar storage. In a global portfolio we have base load power, renewables, and I could also see us investing in battery storage and microgrids, going forward. 

“Storage technology has become investable in the last 12 to 24 months. It’s a lot like wind and solar was 10 or 15 years ago,” opines Foo.

He expects storage technology will consolidate to a handful of large players over the coming years, as GE and Siemens have achieved in the wind power space. Tesla and one or two others will likely emerge as dominant players. 

“It’s an interesting space but you have to be very selective,” adds Foo. “Power has been the graveyard for a number of investors. If you are taking power market exposure you have to understand the risks and price them accordingly.”

Commenting separately on the ICP partnership, Simon Ellis, Partner & Global Head of Origination, Infrastructure Equity at AMP Capital, remarked: “AMP Capital is growing its presence in the North American infrastructure market and we are delighted to have secured this opportunity on behalf of our clients around the world.  We look forward to leveraging our energy investment and asset management experience and collaborating with Invenergy to realize the maximum value of the portfolio.”
Jim Murphy, President and Chief Operating Officer at Invenergy, added that Invenergy had created a “world-class platform” for the development and operations of clean energy projects.  

The commitment to clean energy investing is integral to AMP Capital, having long been a pioneer in ESG investing. It was recently ranked in the top 3 across various criteria in the recent ESG industry rankings published by GRESB. It was also one of the first signatories to the UN Principals of Responsible Investing (‘UN PRI’) and is committed to doing what’s right, not just for its investors, but for the planet. 

“ESG is absolutely a key part of every investment we make,” asserts Foo. “We would never invest in coal but with respect to gas-fired power, you will continue to need base load power and it’s a relatively clean technology. Not as much as renewables, but we do invest in renewables as well. 

“Being a good investor and a responsible investor, in my view, are intertwined. Some managers have come in and used ESG as a marketing tool, but the GRESB rankings speak for themselves, as do the types of investments we’ve made. 

“My hope is that this will be a long-term partnership with Invenergy and we double or triple this investment over the next five years.”

RBC Capital Markets acted as sole financial advisor for AMP Capital when structuring the partnership. Goldman, Sachs & Co acted as lead financial advisor along with Credit Suisse for Invenergy. Legal advisors were White & Case for AMP Capital and Latham & Watkins LLP for Invenergy.

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