Mirova: Gradual expansion of energy transition

Since the launch of its first energy-transition infrastructure fund in 2002, Paris-based Mirova has continually broadened its scope. It is now capitalising industrial players that are active in energy transition.

Its latest fund, Mirova Energy Transition 5 (MET 5), embodies the progression of the approach. The fund will allocate up to 30% of its capital to fund private companies that are getting renewable projects off the ground.

MET 5 raised €1.6bn – revised upwards from its original hard cap of €1.3bn – to satisfy a seemingly insatiable appetite for participation during the transition trend.

Most recently, it set up a renewable energy platform to build the largest solar park in the Baltics. This came after Mirova injected up to €165m into an independent power producer, Sunly, to build and expand its renewable portfolio in the Baltics and Poland. 

Raphael Lance, head of energy transition infrastructure funds, says Mirova has a history of early-stage investment. An affiliate of Natixis Investment Managers, it invests with developers and creates joint-venture platforms to undertake projects. 

“We fund these projects and share the development risk,” Lance says, adding that it pays off for Mirova to accelerate development projects from concept to shovel-ready stage. Investing early in a project also lowers the entry price, he adds.

The track record of developers is crucial to successful investment. Risk is managed by funding projects in stages during construction, and risk is mitigated by investing in portfolios as opposed to single projects. “Statistically,” says Lance, “a number of projects will be successful. Some may fail.” 

With its investment in Corsica Sole, a solar energy producer and operator of projects throughout France, Lance says the company has both operating projects and several diversified assets at different stages of development. 

So far, the firm’s experience as a developer of projects has been rewarding. In 2011, Mirova acquired a 25% stake in a French renewables company, Vol-V, which had wind projects at various stages of development. “We worked with the company to build a solar portfolio,” says Lance. “Vol-V was also a first mover in biogas.”

Almost a decade later, Vol-V sold its wind assets to Compagnie Nationale du Rhone (CNR), one of France’s largest renewable energy operators. It also sold its solar and biogas plants to another investor. “We sold assets for €200m, and in the process we made close to five times our original investment,” Lance says.

Mirova also entered a joint venture with Valeco in France and Lance says it made a double-digit return when the portfolio was sold to an external renewables fund. These transactions occurred after the assets had been stabilised and Mirova was able to sell them into the market where the expected internal rate of return for brownfield projects is lower than it was three or five years ago, due to yield compression.

But with success comes learning experiences. Lance says that in a joint venture with a company producing small solar plants, some of the investment is caught up in what he calls “inflation scissors”, with a higher cost of materials and labour and regulated prices of tenders that were low on renewable assets.

“We have to find ways to commercialise the electricity differently… like private power-purchasing agreements,” he says. Mirova and industry players are having discussions with local governments to walk back some unbuilt projects.

Lance says: “Mirova has traditionally been an early-stage player because we like to see new assets come out of the ground. We have seen the market evolve, with an increasing need for project developers to finance themselves. There is a reason for this. The renewable-energy market is moving away from subsidised tariffs, so we have seen a reduction in margin for developers.” 

Lance adds that the development premium has diminished because the industry has matured at a time when institutions are ready to take on risk.

Mirova sees a role in providing private equity to these development companies in exchange for equity. He gives the example of Corsica Sole, which develops solar projects. Mirova has taken an equity stake of 30% with additional convertible bonds that could lead to 60% ownership.

MET 5 is set up to allocate 30% of its capital to private equity, meaning investing directly into development companies.

Mirova funds started with renewables – mostly onshore wind and solar with “a bit of biogas”, says Lance. From 2016 onwards, energy storage was added to the list on the basis that it is a key element necessary in stabilising the grid when the amount of intermittent energy fed into it is increased. 

Lance says that Mirova’s previous energy-transition fund allocated 10% of its capital to electrified transportation. The new fund has allocated 30% to low-carbon mobility.

“There is a big trend in the mobility market to invest into charging points infrastructure and to deliver electricity to electric-vehicle users,” says Lance, noting that there has been a significant uptick in transactions in electric vehicle-charging networks over the last two years.

Three years ago, Mirova moved into green hydrogen through its investment in a Parisian taxi service, Hype Taxi, which runs on hydrogen. But its largest investment yet in hydrogen is in Hy2gen, a green-hydrogen investment platform which in 2022 raised €200m to fund the construction of facilities in several geographies, including Europe. These produce green hydrogen-based fuels for maritime and ground transport, aviation and industrial applications. 

Mirova invested alongside Canadian institutional investor CDPQ and French company Technip Energies, in what was described as the largest private green hydrogen-focused capital raise at the time.

Mirova’s investment focus has understandably been euro-centric. Starting from France, it has spread its footprint across the continent. Poland is the latest destination. 

Lance agrees that the war in Ukraine has created anxiety among some investors. “It is true that the war is at the door. Our view is that Poland is in the EU, it is a NATO country, and for Russia to go into Poland is like going into Germany,” he says. 

“Our investors, particularly from Asia, are far away from European policy, but we are comfortable. In fact, we have also invested in the Baltics, which has a long border with Russia.”

Mirova is on the cusp of going global. Its latest fund intends to have 10% of its assets outside Europe. Asia-Pacific is the next stop. Mirova has established an office in Singapore, and one of its directors has relocated from Paris to Singapore to seek out projects in Australia and in South Korea. 

Mirova recently invested in TagEnergy, a clean-energy company which has 60% of its assets in Australia. TagEnergy was looking for a €450m capital injection to drive the initial delivery of its development portfolio of more than 2.7GW in the UK, Spain, Portugal, France and Australia. 

With Mirova buying SunFunder, an asset manager which finances renewable projects in Africa and is now moving into Southeast Asia, emerging markets are clearly the next frontier for the company.

“Throughout the years, our strategy in each energy transition fund has tended to add to what we have invested in previous funds, and in what we see as new and interesting in the market,” says Lance.