On a buying trip

19.01.2015
Sixpenny wood wind farm is among the four projects which Swiss Life and Greencoat have taken over. (Photo: Renewable UK)
Sixpenny wood wind farm is among the four projects which Swiss Life and Greencoat have taken over. (Photo: Renewable UK)

The large insurance companies have loads of money set aside, but because low interest rates on the capital markets are bringing almost no returns, they are increasingly investing in wind farms. The aim is to receive stable and low-risk incomes.

The green budget plans of life insurance companies are way above the level of a grandma’s knitting. The dominant players want to invest the odd billion or two in green investments over the coming years. And that with a preference for brand new or nearly new wind farm projects in Europe and the USA. Until recently, insurance companies had tended to be involved with providing protection for operators and when there had been damage to deal with. But meanwhile they have been using their many years of technical expertise to go on their own buying trips. They see wind farms as having a solid material value with adequate yields.

Oh where to put the money?

Their interest is easy to explain. Due to the loose monetary policies of the European and American central banks, they are somewhat caught in the interest-rate trap. Classical investments such as fixed deposits or bonds are hardly attractive anymore because they are a poor way of earning the guaranteed interest rates for life insurance policies. Thus, renewables projects with stable yields and long running times are increasingly becoming an alternative. Such investments are not only interesting because of the better yields, but also because they fit within the legal frameworks of the European Union. These dictate that insurance companies may not put their customers’ money into risky ventures. However, the insurance companies are allowed a certain amount of leeway in choosing the type of investment if they can show they have suitable own capital ratios.

These development opportunities are certainly being utilised. It is worth taking a look at the current “Preqin Special Report: Renewable Energy Infrastructure”. In this, the capital market specialists from the USA confirm that investors such as insurance companies are developing a growing appetite for green projects. According to Preqin, investments in this sector rose from US-$ 13 to 38 billion between 2008 and 2012, and the number of purchased projects rose from 43 to 99. In 2013 a total of 79 projects changed hands and up to the beginning of October 41 projects were traded. Of these, over half of the capital was concentrated in European wind power projects.

The World Bank set up its first Green Bond in euros with over € 550 million in 2014.
It was highly sought after, especially by buy-and-hold investors. The World Bank alone
has already brought 65 green bonds onto the market and placed US-$ 6.5 billion. (Source: World Bank
)

 

MEAG Munich Ergo Asset Management bought up no fewer than seven wind farms in 2014. It is the asset manager for the reinsurer Munich Re and the Ergo insurance group and has been charged with investing € 250 billion profitably. By the end of 2013 MEAG had already invested € 1.5 billion in wind and solar farms and set aside a further € 2.5 billion for this field. The focus is on wind farms in Germany, France, the UK and Sweden. “We have set up a team and competence especially for this and make use of the technical expertise of the mother company when assessing projects. It would not be worth the effort if we were only talking about a few hundred million euros,” says Josef Wild, Press Spokesperson for MEAG.

Expertise is available

The coffers of Allianz AG are even bigger. Their asset manager is Allianz Capital Partners (ACP), which manages a whopping € 600 billion for the insurance company. So far the experts there have invested € 2 billion in renewable energy. This has got them 47 wind farms and 7 solar farms. A further € 400 million is planned in for new projects. Not everything with three blades is being bought, however. “Good wind farms are always interesting, but we don’t buy on overheated markets and have our own assessment team in London. So far we have only taken on new projects, but in the future we may also include wind farms which have already been running for a few years,” explains Stefanie Rupp-Menedetter from ACP.

It would also be no problem if these wind farms were in the USA. The Allianz has its own subsidiaries there, which are active in the life insurance business. Most insurance companies are focussing on the euro region, however, because the risk of fluctuating currencies is low there. Support conditions and running times also play an important role here. Exclusive agreements are also welcome. The Allianz, for example, has bought a wind farm in Sweden which contractually supplies the Internet giant Google with electricity.

Flourishing business in England

For sellers of wind farms and for developers the entry of insurance companies can make for lucrative business, because this trend is driving prices up. While the insurance sector is investing what it sees as mere peanuts in the reallocation of its portfolios, these “insignificant amounts” add up to several billion euros. This is enough capital to feed wind farm projects of all sizes.

So far a lot of this money has flowed to the UK. The companies are showing varying levels of acumen there. Aviva Investors from the English insurance giant bearing the same name set up the Renewable Energy Fund for institutional investors and wanted to gather € 400 million in this. They ended up with just € 100 million because Anglo-Saxon yield expectations were too high. So far the team has bought just a few solar projects and one 50 MW wind farm in Spain.

Greencoat UK Wind has been doing better. The stock company buys wind farms from energy suppliers and pays its shareholders an annual dividend from the operation revenues. So far the yield has been over 8 % and the Greencoat portfolio has grown to 275 MW. This model is working so well because the energy suppliers are looking for investors so that they can get fresh capital for new projects. Sometimes the deals are also exclusive here. Together with Swiss Life (48.4 %) Greencoat (51.6 %) took on four English wind farms with 87 MW in 2014 from AES Corporation. “Renewable energies are a part of the strategy of the Swiss Life Gruppe to invest approx. € 800 million in infrastructure projects. Apart from offshore wind farms and photovoltaics the focus is on regulated energy suppliers in Europe and the USA. Our aim is for stable and low-risk yields,” says Thorsten Wittmeier, press spokesperson for Swiss Life.