Merseyside Pension Fund (MPF) in the UK is among several institutional investors revealed to have invested in a new co-investment vehicle created by Mirova to own a share of a large Portuguese hydroelectric portfolio.

Portuguese electric utility firm EDP announced in December that it sold the portfolio, located in the Douro valley with 1.7 GW capacity, to a consortium of Credit Agricole Assurances, French operator Engie and Mirova, in a €2.2bn deal.

After a debt tranche and price reduction contingencies, the equity portion of the investment is €1.68bn, according to Mirova.

The three buyers now hold stakes of 35%, 40% and 25% respectively in the portfolio, said EDP, noting that the transaction had been finalised exactly a year after the original agreement between the companies.

Mirova, an affiliate of Natixis Asset Management, said it set up the new co-investment vehicle specifically to participate in the acquisition of the portfolio, which had a weighted-average concession term of 45 years.

Of its €422m equity investment in the portfolio, Mirova said €129m would be owned by its current Energy Transition fund, Mirova Eurofideme 4 (MEF4), and €293m would be held via the MEF4 co-investment vehicle.

As well as Merseyside Pension Fund, investors in the new co-investment vehicle include Banca March, Natixis Assurances, Groupama, EB Sustainable Fund and LHI, Mirova said, with the vehicle having attracted existing clients in MEF4 as well as new clients.

Peter Wallach, director of pensions at MPF, said: “This co-investment should generate good returns for our pension members in a cost-effective way, and the pumped storage facilities within the portfolio will also play a critical role in advancing the region’s decarbonisation of power generation.”

MPF, a local-authority pension fund, is a longstanding investor in infrastructure and has deployed over £250m (€280m) into the renewables sector, according to Wallach.

The EDP portfolio includes three recently-commissioned pump storage units along with three run-of-river plants which have been recently renovated. The plants will be operated by Engie.

Wallach told IPE Real Assets that MPL was becoming more interested in direct investments in infrastructure, through both co-investments and its involvement in the GLIL Infrastructure partnership of six UK local authority pension funds.

He said direct ownership was appealing because it offered greater control and lower fees. “We’re not investing blindly, and because we have an established portfolio of assets it means we can more easily target investments that complement the assets that we have,” he said.

“Also of great interest to us is the lower fee load. If we invest directly then we’re paying considerably less in fees than we would be if we were investing in funds.”

MPF invests is still also invested in funds. “One doesn’t get access to co-investments without investing in funds,” Wallach said.

Raphael Lance, head of energy transition funds at Mirova, said: “We have been investing in renewable infrastructure projects for over 18 years now, and only recently have we witnessed this willingness from our investors to commit directly to the projects.

Asked about the current pricing of renewables assets, Lance said: “Overall there is pressure on price but you can still find assets with a good level of return,” he said.

This is especially the case if investors avoid investments relating to feed-in tariff mechanisms, which tend to be more expensive.

“But then if you increase the merchant exposure of your investment – and that is the case with this investment where we are selling to the market – a portion of the volume which is structured on the [power purchase agreement] automatically increases the potential volatility of the asset,” Lance said. “And, therefore, investors would require a higher return.”

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