OTPP Invests in Finland's Power Grid
Ontario Teachers' Pension Plan Board (Ontario Teachers’) and KKR have each acquired a 20% holding in Caruna, Finland’s largest electricity distribution company, from First Sentier Investors (FSI). In a separate transaction that also completed today, AMF has acquired Keva’s 12.5% holding in Caruna. Both transactions have received all necessary regulatory approvals.
Separately, Ontario Teachers’ and KKR have signed binding documentation to acquire a further 40% holding in Caruna from OMERS, which will increase their ownership to 40% each. This later transaction is expected to close during the second quarter of 2021, pending regulatory approvals.
No further details around these transactions were disclosed.
KKR is making the investment through its core infrastructure strategy which focuses on investing in high quality regulated assets in developed OECD markets. Since 2008 across its global infrastructure business, KKR has deployed more than $24 billion in more than 40 infrastructure investments. Ontario Teachers' is Canada's largest single-profession pension plan. It has extensive experience in investing in regulated electricity transmission and distribution businesses, as well as the broader energy sector. AMF manages the employment pension insurance funds of approximately 4 million Swedish individuals and companies and is owned by the Swedish Trade Union Confederation (LO) and the Confederation of Swedish Enterprises (Svenska Näringslivet).
"The electrification of society and the increase of renewable energy production – key elements of Finland’s decarbonization plans – require a strong and smart electricity network. We are convinced that Caruna is well-placed to build a smart and weatherproof electricity network for its customers that will meet growing consumption needs while helping transition to a low-carbon economy. We are committed to investing in Caruna to achieve these goals," says Dale Burgess, Senior Managing Director, Infrastructure & Natural Resources at Ontario Teachers’.
"Caruna’s owners are large and well-established infrastructure investors with significant experience and resources to support and develop the company over the long term. The company and its personnel will continue to operate in accordance with its existing strategy and business plan," says Matti Ruotsala, Chairman of the Board of Caruna.
Upon the closing of all three transactions, the ownership of Caruna will be as follows:
- KKR 40%
- Ontario Teachers' 40%
- AMF Pension 12.5%
- Elo Mutual Pension Insurance Company 7.5%
For more information: Matti Ruotsala, Chairman of the Board of Directors, Caruna. Contacts via Caruna's media phone, tel. +358 20 520 5500
Caruna distributes electricity and maintains, repairs and builds a weatherproof electricity network for its approximately 700 000 customers in South, Southwest and West Finland, as well as in the city of Joensuu, the sub-region of Koillismaa and Satakunta. In order to guarantee a reliable electricity supply to its customers under all circumstances, Caruna supervises its network 24/7. A weatherproof smart electricity network also provides a well-functioning energy system for the future when digital services increase, the traffic is electrified, and the consumer becomes a producer of energy.
www.caruna.fi, Twitter @CarunaSuomi
About Ontario Teachers’
The Ontario Teachers' Pension Plan Board (Ontario Teachers') is the administrator of Canada's largest single-profession pension plan, with C$204.7 billion in net assets (all figures at June 30, 2020 unless noted). It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.5% since the plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific regional offices are in Hong Kong and Singapore, and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded as of January 1, 2020, invests and administers the pensions of the province of Ontario's 329,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.
This is a great deal and the key passage in the press release is this:
"The electrification of society and the increase of renewable energy production – key elements of Finland’s decarbonization plans – require a strong and smart electricity network. We are convinced that Caruna is well-placed to build a smart and weatherproof electricity network for its customers that will meet growing consumption needs while helping transition to a low-carbon economy. We are committed to investing in Caruna to achieve these goals," says Dale Burgess, Senior Managing Director, Infrastructure & Natural Resources at Ontario Teachers’.
Dale and his team are doing a great job at OTPP, shifting their attention away from transportation assets which were hit hard last year to more stable infrastructure assets like electric grids.
This deal is a large co-investment with KKR which is making the investment through its core infrastructure strategy which focuses on investing in high quality regulated assets in developed OECD markets.
On Caruna's website, I read the following:
Caruna distributes electricity and maintains, repairs and builds a weatherproof electricity network for its over 700,000 customers in South, Southwest and West Finland, as well as in the city of Joensuu, the sub-region of Koillismaa and Satakunta. In order to guarantee a reliable electricity supply to its customers under all circumstances, Caruna supervises its network 24/7. A weatherproof smart electricity network also provides a well-functioning energy system for the future when digital services increase, the traffic is electrified, and the consumer becomes a producer of energy. Caruna’s electrical network is over 88,000 kilometres long.
Caruna Group includes two network companies - Caruna Espoo Oy and Caruna Oy
Caruna Espoo Oy operates in urban areas with a high cabling rate and a high number of customers to share the expenses per metre of network. Caruna Espoo Oy is one of Finland's most affordable electricity companies. Caruna Oy operates mainly in rural areas where there amount of network to be maintained, built and repaired is high. The length of the network is 168 metres per customer in Caruna Oy's area. In Caruna Espoo Oy's area, the corresponding number is 36 metres per customer.
Caruna was founded in 2014, but its story really began in 1912 in a place called Karuna where a new electricity company started out. Our experience in electricity distribution spans for more than a 100 years. Above all, we strive to secure an uninterrupted electricity supply and continuously improve our electricity network. Thanks to these efforts, our customers can, for example, generate electricity for their own use and sell the surplus through our network.
Caruna has approximately 300 employees and contracts 1,000 additional workers across Finland. Caruna’s operations are regulated by the Finnish Energy Authority, in charge of monitoring the electricity network business in Finland.
Caruna is owned by Finnish mutual pension insurance company Elo (7.5%), as well as international investors KKR (40%), Ontario Teachers' (40%) and AMF Pension (12.5 %).
So, it's a highly regulated industry and one that is growing as electricity demand grows over the next decade (think electric vehicles and digitization of the economy).
KKR and OTPP will reap great long term dividends on this investment, much better than investing in a public utility company that trades on a stock exchange.
Of course, when it comes to electric grids, we know where we are heading but not all countries are up to par.
In the US, for example, PEW Charitable Trusts found that electric cars will challenge state power grids.
A McKinsey study found that the aging electric transmission and distribution (T&D) grid in the United States needs to be significantly upgraded to withstand the challenges of the future.
And this is before the disaster that struck Texas last month.
Kenneth P. Green of the Fraser Institute wrote a great comment on how Texas provides a cautionary tale for Alberta and the planet. The gist of it is this:
The recent winter storm (not historically unprecedented, despite the Sharknado labelling of “Polar Vortex”) left thousands of Texas households without electric power in lethally cold temperatures that, while nothing to downplay, would have been easily survivable (as they are in places around the world including Canada) with an adequate infusion of affordable reliable power from readily available hydrocarbons. At one point last week, a reported 2.5 million Texans were without power including 1.3 million in the Houston area. The statewide number increased to 3.5 million later that day and power (and subsequent water outages) left many in Houston and its surrounding areas boiling and scrambling to find potable water.
Of course, the renewable lobby is spinning faster than the fastest of wind turbines in trying to convince people that the Texas shift to wind and solar power had nothing to do with thousands of Texans shivering in the dark—while sitting on massive reserves of readily accessible oil, gas and coal (yes, coal).
And as Reason magazine’s Ron Bailey points out, it actually wasn’t the sudden drop in wind and solar power output that was directly to blame; it was the languishing of sufficient pipeline capacity and backup power generation maintenance that’s part and parcel of the wind and solar power agenda.
This is the real lesson of renewable power. It’s not that wind and solar power are “bad” or “scarce” or even “expensive” for the wealthier of the world, at least. But wind and solar power are unfortunately unreliable and require backup power sources that are almost always rendered non-economic in systems with a heavy renewable power component, especially when those same jurisdictions want to phase-out hydrocarbons and the infrastructure that enables their production and use.
Nobody, especially Albertans, should buy the renewable booster’s spin. A world powered by the wind and the sun is a beautiful dream—but that’s all it is, a dream. In reality, Alberta, the country and indeed the whole world desperately need power that can be produced safely, reliably and affordably with the hydrocarbons sitting under our feet. That’s where Alberta’s policymakers should understand if we’re to learn a proper lesson from our Texas cousins.
I shared this with Leo de Bever who commented:
My take on this is a bit different. Texas is not well integrated with the US electric grid because it felt it did not need the rest of the US. Bad call. This had little to do with renewables. The gas pipe network was poorly insulated so that piece broke down.
Do we need storage? Absolutely. Not 8 hour storage but much longer. I am trying to do that in the North to displace diesel with solar and ammonia storage and pump storage. Still tough.
Can we replace oil and gas with renewables by 2050? Not likely. So I am making the oil and gas guys mad because I believe they should cut extraction GHGs, but they think price increases will allow them to get by and do nothing. T
he environmentalists have their math wrong on how fast you can go sustainable and have enough storage to keep the grid stable.
A friend of mine who is an engineer and has worked on power grids has a different take:
Again, a somewhat simplistic view, the cascade started with renewables failing. They failed in such an abrupt way that grid operator started to load shed.
And if Texas was part of the national grid, power outages would have occurred in neighboring states.
Unfortunately they cut the power to gas transmission pipelines so the gas plants couldn’t ramp up to keep the grid stable.
The fundamental problem is the intermittent nature of renewables and how they cause cascading problems in transmission.
Also, I have never heard of gas pipes freezing. there may be valve malfunctions because actuators were no longer electrified.
Anyway, the point is that grids are not tried and tested.
But Leo is right, batteries may help.
Why am I sharing all this? Not because Finland is Texas (nothing like Texas and their grid is a lot more stable), but to demonstrate how investing in power grids isn't as simple as people think, especially in the United States where there are a whole host of problems in some states.
Luckily, with this investment in Caruna, Ontario Teachers' and its trusted partner, KKR, do not have to worry about renewables causing a cascade of events that will leave Finland in the dark.
This is a great long term investment which brings Ontario Teachers' stable long term returns and closer to its goal of achieving net zero emissions by 2050.
In other related news, TricorBraun was acquired by Ares Management and Ontario Teachers’ Pension Plan:
Global packaging leader TricorBraun (the “Company”) announced today the completion of its previously announced definitive stock purchase agreement with funds managed by Ares Management Corporation’s Private Equity Group (“Ares”) and Ontario Teachers’ Pension Plan Board (“Ontario Teachers’”). Ares and Ontario Teachers’ have acquired a majority interest in the Company.
“We are excited to continue our exceptional growth with Ares and Ontario Teachers’ as our partners,” said Court Carruthers, President and CEO, TricorBraun. “We look forward to working with Ares and Ontario Teachers’ to deliver exceptional service to our customers while continuing to build the best place for the best people in packaging.”
TricorBraun is North America’s largest primary packaging distributor and one of the largest providers of packaging in the world. The company serves consumer packaged goods companies, from cutting-edge start-ups to the world’s most iconic brands, and is a critical packaging provider for the essential personal care and household cleaning, food and beverage, and healthcare/nutraceutical industries. From rigid to flexible packaging, stock and custom capabilities, and countless options of materials, industries, and markets served, TricorBraun’s range of packaging solutions sets it apart. Serving customers since 1902, TricorBraun has grown to $1.5 billion in annual sales, with more than 1,100 team members in 50 locations throughout North America, Europe, and Asia.
TricorBraun’s management team, including Executive Chairman Keith Strope and Carruthers, will continue to lead the Company. TricorBraun’s leadership team will also retain a significant investment in the company, as will its former majority owner, AEA Investors.
“With the completion of our investment in TricorBraun, we are looking forward to taking the next step in partnering with the Company, Ontario Teachers’ and AEA,” said Brian Klos, Partner in Ares’ Private Equity Group. “We are excited about working with the talented team at TricorBraun as we look to build upon the Company’s success and history of growth.”
“TricorBraun has served as its customers’ trusted packaging partner for more than 100 years,” said Karen Frank, Senior Managing Director, Equities, Ontario Teachers’. “We are pleased to partner with Ares, AEA, and the strong management team to support TricorBraun’s next stage of growth and innovation.”
Terms of the deal were not disclosed.
About TricorBraun
Founded in 1902, TricorBraun is North America’s largest distributor of primary packaging and one of the largest purchasers of packaging in the world. The company provides innovative solutions across a wide array of customer end markets in plastic and glass containers, closures, dispensers, tubes, and flexibles. TricorBraun operates from 50 locations globally. Our award-winning Design & Engineering Center provides forward-thinking design, driven by consumer insight and creative solutions. Other services include global sourcing, manufacturing oversight and global supply chain programs. Visit www.tricorbraun.com.About Ares Management Corporation
Ares Management Corporation (NYSE: ARES) is a leading global alternative investment manager operating integrated groups across Credit, Private Equity, Real Estate and Strategic Initiatives. Ares Management’s investment groups collaborate to deliver innovative investment solutions and consistent, attractive investment returns for fund investors throughout market cycles. As of December 31, 2020, Ares Management's global platform had approximately $197 billion of assets under management with more than 1,450 employees operating across North America, Europe and Asia Pacific. For more information, please visit www.aresmgmt.com.About Ontario Teachers’ Pension Plan Board
Ontario Teachers' is the administrator of Canada's largest single-profession pension plan, with C$204.7 billion in net assets (all figures at June 30, 2020 unless noted). It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.5% since the plan's founding in 1990. Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific regional offices are in Hong Kong and Singapore, and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded as of January 1, 2020, invests and administers the pensions of the province of Ontario's 329,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.
Again, another great co-investment with a great partner, Ares, to acquire a global leader in primary packaging, TricorBraun, a company with a long history and $1.5 billion in annual sales.
These deals are significant and demonstrate how OTPP is committed to finding investments with stable returns and committed to reducing its carbon footprint.
Below, a clip on how Caruna ensures that society can function by providing reliable electricity distribution:
Our basic function is to ensure uninterrupted and weatherproof electricity distribution to our 692,000 customers. A reliable electricity network is an essential aspect of the reliability of supply in society. The more digitalised a society is, the more important reliable electricity distribution becomes.
We are placing electric cables underground to protect them from extreme weather. This is also freeing up land for agriculture and forestry purposes, as well as for use as carbon sinks. We facilitate the digitalisation of society through the joint construction of electricity and telecom networks, as well as municipal infrastructure.
Our growing customer base and developing electricity network are key prerequisites for our ability to create value for our customers and society. This is supported by Caruna's strengths: high-quality supply chain management, skilled personnel and close cooperation with partners.
In the future, Caruna may, for example, function as a platform for developing new kinds of services and smart energy solutions to help the decisions of customers.
Sounds like a very promising future and Ontario Teachers' members now own a big stake in it.
Also, a great clip on the design and engineering at TricorBraun. It shows you how intricate the primary packaging industry is and why this company is a global leader.
Update: On May 11, OMERS Infrastructure announced the official close of the sale of its shares in Caruna, Finland’s largest electricity distribution company, to KKR and the Ontario Teachers’ Pension Plan Board (Ontario Teachers’):
OMERS Infrastructure today announced the official close of the sale of its shares in Caruna, Finland’s largest electricity distribution company, to KKR and the Ontario Teachers’ Pension Plan Board (Ontario Teachers’).
Since investing in Caruna in 2014, OMERS Infrastructure has delivered on the value creation and growth initiatives it set out to achieve during its period of ownership – including overall customer service levels. During the time of OMERS Infrastructure’s investment in Caruna, the company has:
- Successfully established the necessary systems and processes to facilitate a corporate carve-out and become a standalone business fully separate from former parent Fortum. This included rebranding, establishment of a customer, IT and finance function and implementation of a new investment grade capital structure.
- Strengthened the network to deliver safe, reliable electricity, including: improving its resilience to major storms; and, delivering a 99.98% reliability rate of electricity supply.
- Contributed to Finland’s climate goals, including: achieving a 24% carbon footprint reduction between 2018 and 2020; in 2018 being the first company in the industry to measure and include the emissions caused by the supply chain in addition to Caruna’s own direct and indirect emissions in calculating its carbon footprint ; and, by 2020 having connected 9,400 small-scale production sites the Caruna network, an increase from only 2,300 in 2017, thereby providing 96MW of solar power production capacity in 2020.
- Made a meaningful economic contribution within Finland, including: investing more than €1.4bn between 2014-2020 in the network to improve resilience and replace ageing assets; undertook a leadership role in developing and supporting initiatives to improve industry health and safety standards including the launch of Caruna Academy, a program to provide advanced training for new electricians and supporting their employment with leading contractors; and, employing over 300 Caruna and approximately 1,000 contractor employees as of YE 2020.
“We are very proud of the value we have created along with our co-investors with this investment for the members of the OMERS pension plan” said Philippe Busslinger, Senior Managing Director and Head of Europe for OMERS Infrastructure. “Our work alongside our partners and the Caruna management team is a strong example of our direct asset management approach. The business has enjoyed significant growth and contributed positively to the communities in which it operates. We wish the company and its new owners well as they continue their journey supporting Finland’s energy transition.”
Matti Ruotsala, Chairman of the Board of Caruna commented: "We have enjoyed our close partnership with OMERS Infrastructure and the other original investors in Caruna, and now look forward to the next phase of growth for our organisation together with the new ownership. Caruna’s mission, strategy, and executive management team remain the same, and our focus on customer service, resilience and enabling the green energy transition remain the top priorities.”
Well done, Philippe Busslinger and team, Caruna was a great investment for OMERS and it will be a great one for OTPP too.
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