Wind and Small Hydro Projects the New Priorities of Europe’s Largest Renewable Energy Fund

on May 23, 2012

HgCapitalTrust (HGT.L )has invested around €1.5 billion in more than 50 renewable energy projects in Europe and it seems that the fund has no intentions to reign in spending,with last week’s announcementof the acquisition of the 20.5MW Wandylaw wind project in Northumberland, UK. However, the fund will be selecting its targets carefully from now on, choosing projects closest to being financially viable without government support, according to Tom Murley, London-based director and head of the renewable energy team at HgCapital.

“People still want clean and renewable energy. But there’s a change in what they are willing to pay for it,” Mr. Murley said, summarizing the current trends at HgCapital. With government support for renewablebeing constantly questioned, and the longevity of present policy not completely secure it’s understandable where the change in approach comes from. And the emphasis for future investments will be on onshore wind projects and small hydro plants for the foreseeable future. The Wandylaw onshore wind project in Northumberland, UK is a perfect example of that policy.

The deal for the project was announced last week. HgCapital provided 100% of the equity for construction and development, and £36 million in construction and term loan project financing were arranged from the Royal Bank of Scotland.Norwegian energy company Statkraft will buy the power and Renewable Obligation Certificates under a long-term contract.

!m[](/uploads/story/87/thumbs/pic1_inline.png)The fund plans towards building sustainable economies of renewable assets that can provide opportunities for future projects. “We look at the natural resources and find countries and places where we can do repeat projects,”Murley said.
He also shared his expectations for decreasing costs forrenewable energy plants, while the cost of traditional power going up. But for renewable to be truly competitive with conventional power, it will need support from the governments. Nuclear installations, for example are typically heavily backed by government in a number of ways, such as by financial guarantees, which is of huge benefit to nuclear providers. Renewable energy power plants will need a higher level of involvement from officials to stay competitive and play a more significant role in the global energy mix.

Grid parity, Murley said, can be achieved within 10 years or so, if subsidies are on the same level for all energy forms. Although subsidies paid to renewable energy providers in the form of feed-in-tariffs receive a great deal of attention, many in the industry argue that other means of energy production such as fossil fuels and nuclear receive much more financial support from government, albeit in a less publicly direct manner. The encouraging signs are that, renewable energy is already competitive in some markets, which shows that with a wise state policy, the energy gathered from wind, solar, hydro, etc. can be on par with conventional energy. Wider realization of that fact would enable quicker and smoother adoption of renewable energy on a global scale.
Murley started at HgCapital eight years ago, managing renewable energy investments. Since then he has raised about €850 million from European and US institutional investors, including several large pension funds.


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