IMCO and PSP Investments Acquire Germany's NeXtWind
Sandbrook Capital has partnered with the Public Sector Pension Investment Board (PSP Investments) and the Investment Management Corporation of Ontario (IMCO) to buy German renewable-energy company NeXtWind Capital.
Sandbrook and the Canadian pension investors have agreed to buy the Berlin-based start-up from a Crestline Investors-led consortium, in a deal that will see the new owners commit up to $750m (€683m) of equity to NeXtWind to acquire its existing portfolio of operating wind assets and to fund future growth.
NeXtWind specialises in acquiring and repowering onshore wind farms and the deal is intended to help it grow and become a “leading renewable energy company in Germany and beyond”, the companies said.
Ken Ryan, co-founder and partner at private investment firm Sandbrook, said: “We are thrilled to partner with the NeXtWind management team, as well as PSP Investments and IMCO, to grow this platform in Germany.
“We have been looking to enter this space for several years and are confident we have the right team and capital base to become a leading player in the German renewables market.”
Patrick Samson, SVP and global head of real assets investments at PSP Investments, said: “Onshore wind repowering represents an important lever in enabling Germany’s energy transition.
“We are proud to join forces with NeXtWind’s highly experienced team to deliver on their repowering strategy and to reinforce our commitment to using capital and influence to support the transition to global net-zero emissions by 2050.”
Matthew Mendes, managing director and head of infrastructure at IMCO, said: “This is IMCO’s first investment in the German wind-energy sector, and demonstrates our commitment to boost renewable-energy production and enable the global energy transition, in alignment with IMCO’s climate action plan.”
Ewald Woste, co-founder of NeXtWind, managing partner of NeXtWind Management and member of the board of NeXtWind Capital, said: “We have been focused on the repowering opportunity in Germany for over six years now.
“With this newly announced acquisition and partnership, we have the capital to match our business development and operational expertise and grow the amount of renewable energy produced from older wind sites, helping the energy transition and also increasing Germany’s energy security.”
Michael Guy, CIO of Crestline Europe, said: “As the lead investor in the first funding round raised by NeXtWind, we identified a best-in-class team and an important market opportunity with the complexity, scale and attractive risk return characteristics that we look for in our investment set.”
PSP Investments put out a press release on this deal:
London, UK, August 9, 2023 – Sandbrook Capital (“Sandbrook”), a private investment firm dedicated to building businesses crucial to transforming the world’s energy infrastructure, alongside co-investors Public Sector Pension Investment Board (“PSP Investments”) and the Investment Management Corporation of Ontario (“IMCO”), today announce they have signed an agreement to acquire NeXtWind Capital Ltd (“NeXtWind”), a German renewable energy company specializing in acquiring and repowering onshore wind farms, from a syndicate led by Crestline Investors (“Crestline”), an investment management firm head-quartered in Fort Worth, Texas. As part of the transaction, Sandbrook, PSP Investments and IMCO will commit up to US$750 million of equity capital to NeXtWind to acquire its existing portfolio of operating wind assets and to fund future growth.
NeXtWind’s management team, led by its founders Ewald Woste, Werner Süss and Lars Meyer, have decades of experience in the German power market, having worked as executives and board members at companies such as E.ON, Vattenfall and STEAG. Following the transaction and with a significantly strengthened balance sheet, NeXtWind will be well positioned to execute on its strategy of acquiring and repowering German wind assets and becoming a leading renewable energy company in Germany and beyond. Germany is the largest onshore wind market in Europe with ~58GW of installed capacity at the end of 2022. Approximately 30% of this capacity (~13,000 turbines) has been in service for more than 15 years, presenting a large addressable market of older turbines that will need to be repowered.[1]
Commenting on the transaction, Ken Ryan, Sandbrook co-founder and partner said “We are thrilled to partner with the NeXtWind management team as well as PSP Investments and IMCO to grow this platform in Germany. We have been looking to enter this space for several years and are confident we have the right team and capital base to become a leading player in the German renewables market.”
Patrick Samson, Senior Vice President and Global Head of Real Assets Investments at PSP Investments added “Onshore wind repowering represents an important lever in enabling Germany’s energy transition. We are proud to join forces with NeXtWind’s highly experienced team to deliver on their repowering strategy and to reinforce our commitment to using capital and influence to support the transition to global net-zero emissions by 2050.”
"We are delighted to partner with NeXtWind and co-investors to support NeXtWind’s mission to rejuvenate Germany’s renewable energy asset base. This is IMCO’s first investment in the German wind energy sector, and demonstrates our commitment to boost renewable energy production and enable the global energy transition, in alignment with IMCO's Climate Action Plan,” said Matthew Mendes, Managing Director, Head of Infrastructure at IMCO.
Ewald Woste, Co-Founder of NeXtWind, Managing Partner of NeXtWind Management GmbH and Member of the Board of NeXtWind Capital Ltd. said “We have been focused on the repowering opportunity in Germany for over 6 years now. With this newly announced acquisition and partnership, we have the capital to match our business development and operational expertise and grow the amount of renewable energy produced from older wind sites, helping the energy transition and also increasing Germany’s energy security.”
Michael Guy, Chief Investment Officer of Crestline Europe said “As the lead investor in the first funding round raised by NeXtWind, we identified a best-in-class team and an important market opportunity with the complexity, scale and attractive risk return characteristics that we look for in our investment set. We are confident that NeXtWind will continue to flourish with the support of its new investors.”
About Sandbrook
Sandbrook Capital is a private investment firm dedicated exclusively to partnering with world class management teams to build great companies that are crucial to transforming the world’s energy infrastructure. The firm was founded by five partners with decades-long experience in the renewable energy sector. It has offices in Stamford, CT and London, UK. Follow us on LinkedIn or visit us at Sandbrook.com.
About PSP Investments
The Public Sector Pension Investment Board (PSP Investments) is one of Canada’s largest pension investors with $243.7 billion of net assets under management as of March 31, 2023. It manages a diversified global portfolio composed of investments in capital markets, private equity, real estate, infrastructure, natural resources, and credit investments. Established in 1999, PSP Investments manages and invests amounts transferred to it by the Government of Canada for the pension plans of the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, PSP Investments has its principal business office in Montréal and offices in New York, London and Hong Kong. For more information, visit investpsp.com or follow us on Twitter and LinkedIn.
About IMCO
The Investment Management Corporation of Ontario (IMCO) manages $73.3 billion of assets on behalf of our clients. Designed exclusively to drive better investment outcomes for Ontario's broader public sector, IMCO operates under an independent, not-for-profit, cost recovery structure. We provide leading investment management services, including portfolio construction advice, better access to a diverse range of asset classes and sophisticated risk management capabilities. As one of Canada's largest institutional investors, we invest around the world and execute large transactions efficiently. Our scale gives clients access to a well-diversified global portfolio, including sought-after private and alternative asset classes. For more information, visit imcoinvest.com or follow us on LinkedIn and Twitter @imcoinvest.
About Crestline
Crestline Investors, Inc., founded in 1997 and based in Fort Worth, Texas, is a global institutional investment management firm with US$16.6 billion of assets under management. Crestline Europe LLP specializes in direct private capital investments in resilient industry sectors which are either asset backed or demonstrate defensive cash flow profile in developed markets of Europe. For more information, please visit www.crestlineinvestors.com.
IMCO put out the same press release on this deal which you can read here.
Let me begin by stating I remember Crestline Investors from my days investing in hedge funds over 20 years ago at CDPQ.
They are an excellent alternative investment firm based in Texas and I'm glad to see they're still around and doing well.
Next, let's go back a couple of years when Vera Eckert of Reuters reported that NeXtWind bought three German onshore wind parks and was looking for more:
FRANKFURT, June 25, 2021 (Reuters) - Investment firm NeXtWind said on Friday it had bought three onshore wind parks in northern Germany with a combined capacity of 70 megawatts (MW), a first step in its plan to invest in maturing German wind power assets.
The deal accounts for over half of the $100 million raised by the company in a financing round from institutional investors and individuals, including Crestline Investors, Ferd and ARB Investment Partners, NeXtWind said in a statement prepared for Reuters.
The company aims to allocate the rest of the money over the next 12 months, while planning more fundraisings for a second phase of spending in Germany and Europe, it said.
Ultimately, NeXtWind wants to have a 1 gigawatt (GW) portfolio of carbon-free assets.
The company aims to extend the life of green power assets, where subsidies are ending, and, where possible, raise their capacity.
The first projects comprise 34 turbines in the states of Lower Saxony and Saxony-Anhalt with an average age of 14 years.
NeXtWind plans to triple the sites' current annual output to around 300 gigawatt hours (GWh) a year by between 2024 and 2026.
Chief Investment Officer Lars Meyer said the company was looking to buy assets from owners who choose not to operate them under more market-based conditions.
"Ownership of these ageing project sites, particularly in Germany, is highly fragmented, so strong local market relationships are essential for sourcing and successfully executing investment opportunities," he said.
The turbines' output will be marketed under fixed price deals called power purchase agreements (PPAs), which are becoming popular among utilities' trading arms and corporate consumers keen on becoming greener.
By 2025, up to 16 GW of German green power capacity will lose subsidy status under 20-year fixed price guarantees that are being replaced with an auction-based system.
So, NeXtWind is a company that aims to extend the life of green power assets, where subsidies are ending, and, where possible, raise their capacity.
As its CIO Lars Meyer states: "Ownership of these ageing project sites, particularly in Germany, is highly fragmented, so strong local market relationships are essential for sourcing and successfully executing investment opportunities."
Another interesting tidbit from that article which is 2 years old is that by 2025, up to 16 GW of German green power capacity will lose subsidy status under 20-year fixed price guarantees that are being replaced with an auction-based system.
That means with the infusion of new capital from Sandbrook, IMCO and PSP Investments, NeXtWind will be in a great position to bid on these assets and repower older wind sites, helping the energy transition and also increasing Germany’s energy security.
Interestingly, on LinkedIn, IMCO CEO Bert Clark posted this comment today on how they are taking a pragmatic approach to the energy transition:
Today, the world economy runs primarily on fossil fuels, providing about 80 percent of our primary energy supply. But, for many reasons, that’s changing.
Most countries have set, or are considering, Net Zero pledges to reduce carbon emissions to combat global climate change. The war in Ukraine has reinforced the security advantages of reducing reliance on imported fossil fuels. The U.S. Inflation Reduction Act has spurred large scale energy transition investment plans in the U.S. and competing government incentives in other countries. And the cost of generating renewable power is now often lower than fossil fuel alternatives.
As a result, between 2018 and 2022 renewable power capacity doubled from 9-to-18 percent of global electricity supply. This rate of growth has been quicker than any other source of electric power generation over that time. In fact, renewable power accounted for 95 percent of the incremental global electricity supply over that period. Wind, solar, hydro and nuclear now make up 40 percent of global electricity supply. And electric vehicle battery production is rapidly increasing in Europe and North America.
The energy transition that is underway will be a powerful technological and societal trend for some time to come. The rise of online shopping is a good example of how powerful technological and societal changes can impact investors. Online shopping grew by 20 percent per year, from 2018 to 2023. Over that same period of time, retail REITS flatlined, with the annualized returns of the FTSE NAREIT at about one percent, while logistics’ REITS rose significantly, with the annualized return of the FTSE NAREIT industrials index over the last five years at about 14 percent.
We believe the energy transition has the same potential to significantly constrain or even damage the long-term value of certain assets while enhancing the value of others. Lower carbon portfolios may not outperform every year, but over the long term, high-carbon portfolios will face headwinds and low-carbon portfolios will have tailwinds.That’s why IMCO established a target of reducing the carbon intensity of the funds we manage by 50 percent by 2030 (as measured against our 2019 baseline) and committed to having 20 percent of our investments in climate solutions by 2030.
There are different ways to accomplish these targets. For example, we could quickly divest of fossil fuel assets and buy existing lower carbon assets, which would immediately reduce the carbon intensity of the assets we manage. However, this strategy would also likely result in lower long-term risk-adjusted returns. The energy transition is a long-term, not short-term trend. And it is not likely to be linear, with geopolitics, public policy and technology causing it to slow down or speed up at times.
Therefore, we believe that a better way to reduce carbon intensity is to invest in a range of energy transition opportunities, including the construction of new low-carbon assets such as renewables, batteries, and utility scale energy storage assets; emerging technologies such as hydrogen and carbon capture; and energy efficiency investments in real estate. This requires a deep knowledge of varied regulatory environments, including perspectives on the most favourable jurisdictions for distinct types of investment; extensive experience building and bringing new assets online; and the ability and willingness to aggregate assets into operating companies to achieve operational efficiencies.
Recent investments we have made highlight how we are employing this strategy to reduce the carbon intensity of our portfolio over time and benefit from the energy transition. In June, we committed US$400 million to Northvolt AB, a leading integrated battery platform focused on the R&D, manufacturing, and recycling of sustainable battery cells and systems. Just this week, we announced our participation in a consortium-led investment in NeXtWind Capital Ltd., a leading German renewable energy platform focused on repowering onshore wind assets.
In addition to these recent examples, IMCO has been actively pursuing similar opportunities over the past few years. For example, in 2021 we acquired 100 percent of Pulse Clean Energy in the U.K., a utility-scale platform focused on battery storage assets.
Our approach to the energy transition is pragmatic and driven by our perspective as long-term investors and fiduciaries. We believe that either ignoring the energy transition, or trying to get too far ahead of it – including for political or ideological reasons – will lead to weaker long-term investment returns. By taking a clear-eyed long-term approach to the energy transition, we can better manage risk, capitalize on emerging sustainable investing opportunities, and generate strong long-term returns for clients.
I recently covered IMCO's $400 million investment in Northvolt here.
Northvolt is an incredible company which will radically change the world in ways we still cannot fathom. It will definitely account for a big part of the energy transition economy and I can't wait for it to come to Canada.
Similarly, NeXtWind is doing its part to repower German onshore wind assets and with the backing and network of Sandbrook, PSP and IMCO, it can do this across Europe and grow very nicely.
From my vantage point, this is an excellent co-investment opportunity for IMCO and PSP and I give credit to Sandbrook Capital for sourcing this deal.
Below, watch an older (2020) DW documentary on Germany’s energy transition is in trouble. The country needs wind power if it is going to meet its climate goals, and successfully transition from nuclear and coal power to renewable energy, but the construction of wind turbines had been stalling.
The only part of the documentary that irritates me is how they look down on nuclear energy, which is completely wrong and the closing of nuclear plants has cost Germany dearly in recent times.
I also embedded a more recent clip on how expansion of onshore wind turbines in Germany continues to gather pace. In the first half of 2023, 331 wind turbines were erected, 50 percent more than in the same half of the previous year. Nevertheless, the German Wind Energy Association is calling for more speed.
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