AIMCo sees Asia offshore wind as 'high potential' transition play
Asset owners operating in Asia are eyeing growing investment opportunities in offshore wind energy projects and farms.
One recent co-investment by Canada's Alberta Investment Management Corporation (AIMCo) is evidence of that.
“The Asia Pacific has a lot of potential for offshore wind energy to help meet regional energy transition target," Jason Munsch, managing director, head of external partnerships, infrastructure and renewable resources, AIMCo, told AsianInvestor.
"We see that offshore wind is surging in North America and Europe due to climate initiatives, decreasing levelised costs, and robust policy support, with APAC also looking to realise its offshore wind potential given significant government policies supporting energy transition."
AIMCo, which invests globally on behalf of pension, endowment, insurance and government fund clients in Alberta, was one of the co-investors in a recently announced offshore wind energy deal in the region.
AIMCo
Cyan Renewables, an offshore wind services platform based in Singapore, in late July announced it was acquiring Australian offshore marine services provider MMA Offshore for $714 million.
This deal represents the region’s largest take-private deal in the offshore wind energy services industry.
Cyan is majority owned by Seraya Partners. AIMCo, which has about $116 billion in assets under management, is one of the co-investors supporting the acquisition via its investment in Cyan.
"Energy security and energy transition are key objectives for countries in the region. This combined with the current vessel supply-demand imbalance in the market created a unique investment opportunity for AIMCo," Singapore-based Munsch said.
“We recognised that Cyan is well positioned in the region to benefit from this imbalance alongside delivering on government aspirations to meet energy security and energy transition goals,” said Munsch.
HIGH POTENTIAL
Offshore wind energy is new for Asia, with the momentum shifting to Asia from Europe in recent years.
The International Renewable Energy Agency estimates that by 2050 Asia will be a global leader in wind power and will account for over 60% of all offshore wind capacity installed globally.
China has so far dominated the region’s wind-power sector; the next group of promising markets includes Taiwan, South Korea, and Japan, where construction of the first offshore wind farms has either been completed or is well underway, according to engineering solutions company ABB.
India, Vietnam, the Philippines, and Australia are another group where various projects and tenders have been announced although construction has yet to begin, ABB noted in a May 2024 blog post.
New vessels will also be needed to support the installation and ongoing operation and maintenance of wind farms.
Research suggests 200 new vessels will be required at a cost of $20 billion by 2030, according to an Asian Infrastructure Investment Bank report titled Offshore Wind Farm Vessels Critical For Asia's Energy Transition.
“These assets are long-term real assets [and] infrastructure investors would be the first port of call for this type of project,” James Chern, managing partner and CIO of Seraya Partners.
“You can see strategic investments from wind farm developers, as well as traditional companies like Shell, BP, which are trying to transition, or large infrastructure funds, which want them for dividend yield that are very stable for the next 20-30 years,” he told AsianInvestor.
“Typically, investments are in the form of equity and banks provide project (debt) financing. Our fund will hold investments for typically 10 years, which is a long time to hold investments," he added.
HIGH RETURN EXPECTATIONS
AIMC0’s Munsch didn’t provide a target for returns from such investments, only saying that the pension fund manager “typically targets returns that are appropriate for the level of risk in the investment opportunity and this is therefore determined on a case-by-case basis.”
Seraya Partners’ Chern offered a more detailed reason for investing in these assets: "One reason we like vessels is because they have long-term inflation indexed contracts, a bit like inflation-protected bonds,” he said.
“You can get double-digit dividend yield with inflation protection – typically north of 10% and increasing with inflation. Even with the higher interest rate environment today, this is still a very attractive investment proposition.”
Chern believes more asset owners will become interested in offshore wind energy as they seek out more energy transition investment opportunities.
“A lot of international capital will likely to go to Australia and Singapore initially and then eventually go to countries like Japan and Korea.”
Seraya Partners
Global institutional investors and fund managers, mostly from the US and Europe, have traditionally invested in offshore wind projects their home markets due to familiarity.
“However, that has also led to intense competition for infrastructure assets leading to compressed returns. As a result, investors are now looking beyond US and Europe, into Asia where competition is less intense, and returns are meaningfully higher.”
In particular, in the mid-market segment, Asia is virtually “unexplored”, and investors can achieve private equity-type returns in the more developed Asian markets such as Japan, South Korea, Singapore, and Australia, said Chern, adding that there are less than 10 funds investing in offshore wind projects in the Asia Pacific.
CHOOSING THE RIGHT PLAY
AIMCo’s Munsch said the pension manager has a detailed list of criteria as it evaluates various investment opportunities.
“For example, we look for infrastructure assets that have strong competitive positions as well as long productive lives to benefit from the tailwinds in the energy transition. We also look for assets with operational maturity to allow effective management of costs and risk,” said Munsch.
Both Munsch and Chern are betting on further opportunities in this space.
Only 9% of global infrastructure capital comes to Asia, although Asia accounts for 60% of global population and 40% of the global economy.
“This means there is roughly a 30% gap in capital, which has the potential to generate excess returns,” said Chern.