Copenhagen Infrastructure Partners (CIP) has launched an energy transition fund with a target to invest around €2.5bn ($3.05bn) in power-to-X and other “next generation” renewable projects.

The Denmark-based fund manager says talks with potential investors are progressing and it expects to secure its first commitment during the summer, with the new fund likely to close by the end of the year.

“Interest has been good, we will have the first close during the summer,” CIP partner Steen Lønberg Jørgensen tells Hydrogen Economist. “The energy transition is a massive opportunity. It’s important that large institutional investors put their money behind it. The investment that needs to go into the transition is enormous, and they want to be part of it.”

"It’s very early stage—the risk is higher but the returns are higher, risk and return go hand in hand. Power-to-X is where offshore wind was 10-15 years ago" Lønberg Jørgensen, CIP

The new launch comes as CIP closes its flagship greenfield renewables fund CI IV, with commitments of €7bn after just a year of fundraising.  The fund was oversubscribed, having reached its initial target of €5.5bn in December 2020. CIP says it achieved commitments from investors across the Nordics, Europe, North America, Asia, and Australia. The investor base is made up primarily of  around 100 pension funds, life insurance companies, and family offices.

CIP’s energy transition fund will initially be smaller than CI IV, which is focussed on large offshore windfarms and other greenfield renewables, but it is likely to be followed by further moves into next generation renewables as that sector matures.

“It will be a smaller than our flagship fund CI IV because we want first to make sure we can deploy the capital in power-to-X projects. The investment period is typically three years and during that period we commit to projects. Then we will come back to the investors with the next fund,” Lønberg Jørgensen says.

“Right now the green commodity markets are immature,” he says. It’s very early stage—the risk is higher but the returns are higher, risk and return go hand in hand. Power to X is where offshore wind was 10-15 years ago.” he says.

“The first movers are starting to reach big scale. The industrial scale and the export business are only becoming relevant now due to the very low cost of renewables and due to government and company CO₂ reduction targets to incentivise the transition.”

€2.5bn – Target for new energy transition fund

CIP’s investment focus is on greenfield investments, rather than brownfield projects already in operation and Lønberg Jørgensen says returns across all its funds have been “more than 10pc”.  “Returns are higher on greenfield assets. And if you sell before the end of the asset’s commercial life, you add to the returns,” he says.

In February, CIP signed a memorandum of understanding with a group of agriculture and shipping companies to develop “Europe’s largest production facility for  CO₂ -free green ammonia” at Esbjerg on the west coast of Denmark. The power-to-X-facility will convert power from offshore wind turbines to green ammonia for use by the agriculture sector green fertilizer and by the shipping industry green fuel. The facility will include electrolysis capacity of 1GW.

Power-to-X is already cost competitive in certain regions with the right wind and solar resources, such as Australia, where CIP is also investing, Lønberg Jørgensen says. “Under the right physical conditions you can make power-to-X economically viable, with a small green premium to be paid. It requires a small green premium in most industries, for instance green steel will be a bit more expensive than conventional steel.”

“Power-to-X is just there at the margin now. There are other alternatives to reduce CO₂ but they are more expensive if you look at the carbon account,” says Lønberg Jørgensen

Parallels with offshore wind

The development of Power-to-X will draw on the experience of the offshore wind sector but will advance at a faster rate and move “more steeply up the learning curve and down the cost curve”, adds CIP partner Michael Hannibal, a former CEO of offshore wind at Siemens. “There are a lot of similarities between offshore wind power-to-X. It needs to be designed for easy assembly and modular build out, exactly the same as wind firms.”

CIP has a significant track record in offshore wind. It recently announced the sale of its 35pc stake in the 588MW Beatrice project, the largest operational offshore wind farm in Scottish waters, after investing in the project for seven years. It is invested in projects in Asia and in the US it is jointly developing the €2.5bn Vineyard windfarm off Massachusetts. “Offshore wind has gone from being a North Sea business to a global business, with all major economies developing it,” says Lønberg Jørgensen.

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Author: Stuart Penson