Deal focus: Partners Group sees sun rising on Taiwan solar

Partners Group has considered four potential renewable energy deals in Taiwan over the past two years, but until late 2015 prospects were dim for building a project with economically viable scale. That's when the Bureau of Energy approved about 10 square miles of the country's sun-drenched western provinces for ground-mounted solar installations. They allow for significantly more power capacity than the space-saving rooftop units that have so far dominated the local industry.

Only months later the Democratic Progressive Party assumed power and pledged to triple solar power installation targets from 6.2 gigawatts to 20 gigawatts by 2025. This regime is now zoning another two similarly-sized blocks of land for ground-mounted solar as a phase-out of the local nuclear reactor fleet accelerates. As of March 2016, Taiwan's solar capacity had reached 922 megawatts, a 165-fold increase on 2008.

"We expect the solar industry to develop in magnitudes of scale because of the transition to ground-mount and the increases in capacity quota that the current government has put through," says Andrew Kwok, senior vice president for Asia Pacific private infrastructure at Partners Group. "Over the last six months, we have noticed other foreign investors of scale coming in, and we expect to co-exist with a few others."

The firm is set to be one of the first institutions to create a sizeable solar portfolio in Taiwan after committing $200 million to a 550-megawatt project to be installed over the next three years in cooperation with local photovoltaic operator Sinogreenergy. Known as Formosa Solar, it will be 99% owned by Partners Group, with Cathay Financial Holdings participating as a minority stakeholder through its life insurance unit.

The transaction was made through a number of investment vehicles - including a EUR1.5 billion ($1.7 billion) PE direct investments fund raised in early 2014 - and is expected to close in the third quarter of 2016. In the meantime, a number of Formosa sites have already been confirmed for power plant development, while others continue to progress through due diligence. Revenue stream security will come through a 20-year offtake agreement at a fixed rate with the state-owned utility, Taipower.

Formosa is Partners Group's third major solar deal in the past two years, following a $100 million commitment to a project in the US earlier this year and a $250 million investment alongside Equis Funds Group in a Japan solar platform. It also represents a continuation of the firm's greenfield infrastructure strategy, whereby major renewables businesses in high-growth markets are able to benefit from a tendency among competing institutional investors to avoid taking on construction risk.

"The characteristics of the underlying assets we're generating are very attractive to infrastructure investors, but we believe there is much better relative value in constructing them in a risk-controlled way than waiting until they're commissioned and then buying them," Kwok says. "We see a lot more incremental value for our clients in building assets ourselves with stable cash flows."

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• Topics
• Greater China
• Cleantech
• Infrastructure
• Expansion
• Taiwan (China)
• Partners Group
• energy