PSP Pushes Further Into Renewables?

Benefits Canada reports, PSP to become largest shareholder of U.S. renewable energy company:
The Public Sector Pension Investment Board is moving to become the largest shareholder in U.S.-based Pattern Energy Group Inc. as part of a series of transactions aimed at supporting a major expansion of the renewable energy company.

According to the details announced yesterday, the pension fund will purchase about 10 per cent of Pattern Energy stock and will co-invest US$500 million in projects acquired by the renewable energy company.

“With these exciting initiatives, we have created an extraordinary opportunity to continue our growth,” said Mike Garland, chief executive officer of Pattern Energy.

“Pattern Energy’s investment in the development business allows us to improve our margins and secure access to a tremendous pipeline of new projects,” he added. “The strategic relationship with PSP Investments provides us with increased capital flexibility for new opportunities, while allowing us to meet our growth targets.”

Pattern Energy’s investment plans include developments focused on wind, solar, transmission and storage projects in the United States, Canada and Mexico. “This relationship grants us access to a portfolio of projects and a source of new assets in renewables, and we believe it will provide good and stable returns for our contributors and beneficiaries,” said Patrick Samson, managing director for infrastructure investments at PSP Investments.

The co-investments include the acquisition of a wind project in each of British Columbia and Quebec. The federal public sector pension fund will also acquire a 49 per cent stake in a Texas wind project from Pattern Energy. Pattern Energy has a portfolio of 20 wind power facilities, including the two projects it’s acquiring, with a total owned interest of 2,736 megawatts in the United States, Canada and Chile.

In other investment news, the Ontario Teachers’ Pension Plan is investing in recruitment company CareerBuilder. According to a news release issued yesterday, an investor group led by Apollo Global Management, along with the Ontario Teachers’ Pension Plan, will acquire a majority of the outstanding equity interests in CareerBuilder.
Karl-Erik Stromsta of Recharge News also reports, Canadian pension fund PSP to buy largest stake in Pattern Energy:
Canada’s Public Sector Pension Investment Board will acquire nearly 10% of the shares of Pattern Energy, becoming the wind-focused US yieldco’s largest shareholder, in a deal Pattern says underscores growing investor confidence in the renewables sector.

PSP Investments, among Canada’s largest pension investment managers, will acquire 8.7 million shares of Pattern Energy from its privately held sponsor company, worth $206m at their closing price of $23.69 on Friday.

PSP Investments will also co-invest $500m in projects being acquired by Pattern Energy, including stakes in the recently completed Meikle wind farm in British Columbia and the Mont Sainte-Marguerite project in Quebec due for completion later this year.

PSP is part of a growing body of Canadian investment funds and energy companies moving aggressively into renewables. San Francisco-based Pattern, whose shares are listed in both the US and Canada, is a sizeable player in the wind markets of both countries.

Pattern Energy was the 11 th largest owner of US wind capacity at the end of 2016, with 1.8GW, according to data compiled by the American Wind Energy Association. The yieldco owns 2.6GW of renewables capacity overall, and has targeted 5GW by 2020.

“This relationship grants us access to a portfolio of projects and a source of new assets in renewables, and we believe it will provide good and stable returns for our contributors and beneficiaries,” says Patrick Samson, PSP Investment’s managing director for infrastructure investments, noting that renewables are “the fastest growing market of power generation”.

Shares of Pattern Energy rose 3.4% in early trading Monday on the news, to $24.50, their highest point since mid-2015.

For much of the past two years, Pattern's shares have traded below their 2013 initial public offering price of $22, amid persistent investor concerns about renewables yieldcos in the wake of SunEdison's bankruptcy.

But the tides have been turning for yieldcos this year, with Pattern’s shares up more than 28% in 2017.

Pattern Energy invests in Pattern Development 2.0

PSP’s investment comes as part of a flurry of deals and reshuffling within the Pattern family of companies, which includes the publicly listed yieldco Pattern Energy and two privately held developers – Pattern Development 1.0 and Pattern Development 2.0, which are owned by US private-equity firm Riverstone Holdings.

Late last year a single development company – Pattern Development, known as Pattern Energy's "sponsor" – was split into two companies: Pattern Development 1.0 and Pattern Development 2.0.

Pattern Development 2.0 owns the bulk of the early- and mid-stage renewables projects in the development portfolio, while Pattern Development 1.0 has held the controlling stake in Pattern Energy and most of the late-stage projects expected to be sold – or “dropped down” – to the yieldco.

The thinking behind separating Pattern Development 2.0 into its own early-stage development company was that it would be easier to raise capital for new projects and expand the development pipeline.

Since the creation of the separate development companies, Pattern Energy has signaled the likelihood that it would invest directly in Pattern Development 2.0.

On Monday Pattern Energy confirmed it will make an “initial” $60m investment into Pattern Development 2.0 – giving it a 20% stake – with an option to invest up to $300m and acquire the entire company. In doing so, Pattern would tie together the early-stage development and project operations activities into a single publicly-listed company.

As a result of the transaction, PSP will indirectly become an owner of Pattern Development 2.0 through its stake in Pattern Energy.

Meanwhile, Pattern Development 1.0 will "gradually wind up its business", selling its remaining projects to Pattern Energy over time, the company says.

“Pattern Energy’s investment in the development business allows us to improve our margins and secure access to a tremendous pipeline of new projects,” says chief executive Mike Garland, chief executive of both Pattern Energy and the development companies.

Pattern Energy’s direct investment in Pattern Development 2.0 comes alongside a $724m package of long-term capital commitments announced for the developer from an entity managed by Riverstone, which includes money from pension, sovereign wealth, endowments, family office, and investment funds.

Pattern Development 2.0 says it has expanded its project pipeline to 10GW, encompassing wind, solar, transmission and storage projects in the US, Canada and Mexico.
PSP Investments put out a press release which you can read here. It partnered up with Riverstone Holdings, an energy and power-focused private investment firm founded in 2000 by David M. Leuschen and Pierre F. Lapeyre, Jr. with approximately $36 billion of capital raised.

This is a huge deal which will help PSP bolster and diversify its renewable energy portfolio. In order to get a sense as to why, read about Pattern Development below:
Pattern Development is a leader in developing renewable energy and transmission assets. With a long history in wind energy, our highly-experienced team has developed, financed and placed into operation more than 4,000 MW of wind power projects. We have a global footprint currently spanning the United States, Canada, Mexico, Chile and Japan and a strong commitment to promoting environmental stewardship drives our dedication in working closely with communities to create renewable energy projects.

We have earned our position as an industry leader by combining creativity, focus and a scientific approach to discover patterns that unlock important opportunities. As a result, our company history shows consistent, groundbreaking work.

Our portfolio is full of industry firsts. Our team was the first to successfully develop a utility-scale wind energy project:
  • on Native American lands in the United States
  • on the Gulf Coast of Texas
  • in the State of Nevada
  • in the Commonwealth of Puerto Rico
We are also currently pioneering transmission projects to deliver wind energy to the Southeastern United States.

Additionally, our portfolio gives us the distinction of working with the Bureau of Land Management (“BLM”) to install a large amount of the wind power projects found on their land.

The transformational partnership structure innovated by our finance team has become the dominant model used in the wind and solar energy sectors over the last decade.

All of these accomplishments have been possible because of the way that we get the job done at every stage of the development process.

By re-examining established practices, we discover new ways to approach our projects. We discern patterns through a systematic and scientific approach, but we count on our practical know-how and industry experience to convert them into projects that perform. When we find profitable patterns, we repeat them. This cycle of discovery, deduction and development is a pattern we’ll keep repeating.
Obviously, this company is an industry trendsetter and leader in utility-scale wind energy projects. PSP made a long-term strategic investment in this sector with experts in the field.

Are there risks? There are always risks with any investment and any deal but clearly renewable energy and wind farms in particular have garnered the attention of many large Canadian pensions, not just PSP.

Renewables are the future of energy. Of course, they remain expensive. In his latest Absolute Return Letter, Oil Price Target: $0 (by 2050), Niels Clemen Jensen argues this point and ends with this comment:
As fossil fuel exploration and production ties up more and more capital, productivity growth continues to decelerate, with GDP growth ultimately turning negative. However, that is only if we cannot find a new and cheaper energy form such as fusion energy.

I am often confronted with the view that we don’t need fusion energy to fix our problems. Renewables – solar in particular – can do precisely the same. Whilst correct that greenhouse gasses will be greatly reduced as we ramp up energy production through renewables, it is still far too expensive a solution to address the productivity problem.

If governments around the world were half as smart as they claim to be, research budgets into commercialising fusion would be multiplied. It is by far the best medication for a struggling global economy, as fusion will have a much more dramatic impact on productivity and hence on GDP growth than anything automation can ever deliver.

However, it is a race against time. The global economy could quite possibly sink well before fusion reaches a state where commercialisation becomes viable – a point we won’t reach for many years. Scientists say fusion on a commercial scale is still 30 years away, but the joke is that they said exactly the same 30 years ago. Hence the need for more research resources.

Finally, before I wrap this letter up, an important point. When I say that, one day, we will no longer demand any fossil fuels, it is not entirely correct. Some residual demand for oil for various purposes (e.g. classic cars) will always exist and will probably keep oil prices above $0 for many decades, but I am sure you get my point.
I have heard plenty of people argue similar points, we need to commercialize fusion, but we're far from there. In the meantime, renewables are growing and the cost of production is falling, making wind and solar energy viable renewable energy sources.

If you have any thoughts on this topic, feel free to share them with me via my email: Don't forget to read my comment going over PSP's fiscal 2017 results.

One final note on PSP. Earlier this week, I found out its CIO Daniel Garant left the organization, which surprised me. I heard rumors he might replace Roland Lescure as the next CIO of the Caisse but there has been no official confirmation. I reached out to Mr. Garant via LinkedIn but received no response which is understandable.

Below,  CEO of Pattern Energy, Mike Garland, discusses new developments in wind energy. Also, the Ocotillo Express Wind Energy Project contains over 100 Siemens SWT-2.3-108 wind turbines and is located on BLM land outside of Ocotillo, California. The equipment is maintained by Pattern Energy Group LP. This video is a composite of 1100 frames that were each shot at f/2.8 6 sec ISO 2000 15 mm.