A joint venture between Danish labour-market pension fund PensionDanmark and German energy firm E.ON has gone to court in the US to try to recover around $300m (€284m) in losses caused by a US water authority ending its deal to buy power from it.
PensionDanmark bought a half share in two wind farms in Texas in October 2012 from E.ON – Papalote Creek I, a 180MW facility, and the 200 MW wind farm Papalote Creek II.
They were part of portfolio of three wind farms the Danish pension fund bought a 50% stake in from E.ON, the third being the 53MW plant in Stony Creek, Pennsylvania.
According to a report from Responsible Investor (RI), the Lower Colorado River Authority (LCRA) decided last year to end the remainder of the 18-year power purchase agreement, or PPA, it signed with the joint venture holding company Papalote.
The decision was made largely due to a drop in wholesale energy prices in Texas to less than $25/MWh, according to RI.
Claus Lyngdal, head of alternative investments at PensionDanmark, told IPE: “We can confirm PensionDanmark have part ownership in a company currently engaged in legal proceedings against LCRA.”
But the pension fund was unable to say more.
“As long as the legal case is ongoing,” Lyngdal said, “we are not in a position where we can share further details of the case.”
A spokesman for E.ON confirmed the LCRA issue.
“As this is a running court procedure, I am unable to comment on it,” he said.
According to the RI report, the LCRA cancelled the $64.75/MWh contract it had with Papalote, saying the decision was allowed under the terms of the contract.
It said the penalty that had been agreed for early termination was a $60m termination payment or $60m in liquidated damages over time.
However, according to news reports, Papalote is claiming that it is actually owed more than $300m in losses arising from the move, arguing the cancellation clause was only applicable in the construction phase of the project.
Pension funds and other institutional investors have been generally increasing their investments in infrastructure over the last few years, with the long-term fixed cashflows that usage contracts promise them seen as a bond-like return – valuable at a time when bonds themselves yield so little.
But concerns about the security of the return guarantees, particularly from a regulatory point of view, have arguably fuelled some reluctance to invest in the asset class.
