Equis, Partners Group invest $250m in Japan solar platform

Equis' commitment comes from its debut pan-Asian energy and infrastructure fund, which closed early last year at $647 million. The GP has also brought in Babson Capital, LGsuper and Qantas Superannuation as co-investors.

According to David Russell, CEO and partner at Equis, the private equity firm mapped the entire region in terms of solar power potential and regulatory factors. It previously invested with Partners Group in a Southeast Asia solar platform and the two parties were in discussions for 18 months as to how to access the Japan market, also talking to management teams, project developers, regulators and banks.

Japan appealed because it offered a combination of a reliable regulatory regime and sufficient available projects to build a scalable business. Following the Fukushima disaster in 2011, the country has sought to ease its dependency on nuclear power and rolled out numerous incentives for alternative energy producers. These include 20-year power purchase agreements and feed-in tariffs.

In 2011, nuclear accounted for 8% of Japan's energy consumption, with hydro on 4% and other renewables, including solar, on 2%. The government wants solar capacity to reach 28 gigawatts by 2020 and 53 GW by 2030, and then meet 10% of total domestic energy needs by 2050.

The number of independent power producers in the solar space has proliferated since the introduction of the feed-in tariffs in 2012. Of the 22,068 MW of capacity approved since then, only 3,916 MW was operational as of November 2013, according to the Ministry of Economy, Trade and Industry. While some facilities are still under construction, it is said that many smaller developers face funding, operational and land permit issues.

A failure to address the peculiarities of the Japanese market is one of the reasons foreign private equity investors have struggled to establish themselves in solar.

"You must have local management teams on the ground," Russell said. "There are so many day-to-day issues you need to address with the development of solar generation facilities. There are stakeholders such as the government and regulators and to interface efficiently with them you need a team that can talk to them. An active management team is also important in making banks confident in you."

In NRE, he believes he has a suitably competent management team and a business with a pipeline that outweighs that of any other independent player in the market. The company has four projects totaling 47.5 MW that will begin construction on completion of financing and the construction documentation, with the first plants expected to start generating electricity in the second half of 2014.

Projects with a combined capacity of 300 MW are scheduled for development over the next two years.

For solar projects in Japan, it is estimated $3 million of investment is required for every 1 MW of capacity, which implies that NRE will need $900 million in funding to develop its full pipeline. Banks have been known to lend 80-85% of the capital for these projects but the Equis and Partners Group-backed platform is targeting a leverage level of 65-75%.

"We are excited to invest in the rapidly developing Japanese renewable energy market and to support the NRE management in filling the large power generation gap in Japan," added Benjamin Haan, managing director and head of private infrastructure Asia Pacific at Partners Group. "We are confident of additional investment opportunities in the near term that will offer our clients the opportunity to further contribute to sustainable energy development in Japan."

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• Topics
• Cleantech
• North Asia
• Expansion
• Japan
• Cleantech
• Growth capital
• Partners Group
• Equis Funds Group
• energy