UK renewables, anyone?

Infinis, Guy Hands’ great rags to riches story is up for sale, prompting a flurry of dubious headlines (“Terra Firma considers washing hands of green energy developer Infinis”, spouted BusinessGreen late last year) and questions about Terra Firma’s commitment to the renewables space.

First things first: it’s time for Infinis to be sold. Its sale has little to do with any clouds over Inifinis’ performance or Terra Firma getting cold feet on renewables, and a lot to do with timing. Terra Firma bought Infinis in 2003 through a fund, Terra Firma Capital Partners II (TFCP II), which closed on €2.1 billion in February 2004.
TFCP II is in winding down mode, with people in the know saying it has already obtained an extension from LPs to give it more time to sell its investments. When or if a sale finally concludes in 2015, Infinis will have been a Terra Firma portfolio company for some 12 years. That’s a very healthy holding period that is now naturally coming to an end.

Still, recent pronouncements by Terra Firma chairman Hands and Infinis chief executive Eric Machiels do make you wonder about how smooth the company’s future will be.

In a December opinion article, Hands railed against a UK energy policy “driven by populism and prejudice”. He particularly despaired that a Conservative government, “spooked by opposition from a loud minority”, seems willing to stop expansion of onshore wind if it wins the next election, despite recognising its value for money.
Infinis’ Machiels sounded even more exasperated during the summer of 2014 when he accused Communities Secretary Eric Pickles of being “totally undemocratic” for rejecting 10 out of 12 planned onshore wind farms this year, four of which had been approved by local authorities.

Despite making its claim to fame by cornering 40 percent of the UK landfill gas to electricity production market, onshore wind is Infinis’ second most important generation source. More importantly, it is the key to the company’s future growth, with Infinis eyeing a 340MW pipeline of onshore wind projects either in planning or awaiting approval. While refreshingly honest, Hands and Machiels appear to be telling future buyers the company might face a bumpy ride to make good on its growth plans.

Even discounting these obstacles, it doesn’t seem unfair to say Infinis’ best days are already behind it. When Terra Firma spotted on what Hands once called “an orphaned landfill gas operation” within Waste Recycled Group, it kick-started a phenomenal growth story.

In just over a decade, the company grew its installed capacity from 57MW to 610MW, becoming one of the UK’s largest renewable energy producers and generating 7 percent of the country’s electricity.

It seems unlikely Infinis’ new owners will be able to again experience such transformative growth.

None of that will stop Terra Firma from making a killing from Infinis. As far back as 2011, Hands was saying Infinis was “making many many times the money we invested in it”. Bought for some £51 million, Terra Firma has already netted £234 million, from when Infinis listed on the London Stock Exchange last year. In February 2014, the Financial Times estimated Terra Firma had to date booked a gain of $1 billion on Infinis, a third of which has been returned to investors. And its current 68.6 percent stake in Infinis has a market value of £450 million.

So in a way, Infinis is old news. The real question for Terra Firma this year is, will it be able to replicate Infinis’ success in raising its $2 billion renewables energy fund.

Bruno Alves is the editor of sister publication Low Carbon Energy Investor. He writes a monthly column on private capital’s engagement with new energy markets.