5 May 2016 by Steve Eminton

Funds ‘available for green infrastructure’

Funding is ready and waiting for waste related infrastructure projects, one London-based waste sector specialist fund manager has told letsrecycle.com.

There is an ongoing and significant ambition within pension funds and other providers to put investment money into environmental infrastructure projects, according to London-based investment firm manager Iona Capital.

(l-r) Decisions: Iona Capital chairman John Kuttner and funds manager Nick

(l-r) Decisions: Iona Capital chairman, John Kutner with founding director and investment manager, Nick Ross

Speaking to letsrecycle.com, the London-based investment firm said it was keen to ensure the waste and recycling sector recognised the desire of investment funds to invest in “green” projects. And, they pointed out that there is also a push by government to get pension funds to invest in the sector.

Iona Capital manages funds for institutional investors who provide equity and subordinated debt into renewable infrastructure projects in the ‘BioEnergy’ sector.

Its focus is on long term, low risk, infrastructure projects which can deliver “non correlated cash yields to investors in excess of 10% per annum”.

To find suitable projects, which can benefit from investment and also provide returns to investors, the company has its own team with both waste management industry and local authority knowledge as well as funding skills.

Skill set

Iona’s investment committee chairman is John Kutner, a former financial director and deputy chief executive of Veolia. He says that the investment firm is “steeped in the waste industry” and has a “skill set ideal for investment work going into the biomass and bioenergy sector”.

The team has further waste management and infrastructure knowledge with Mike Dunn, a former chairman of ELWA Ltd, which operates the East London MBT plant, and who has held senior posts at Shanks and Veolia. And there is also Phil Davis, Iona’s development director who has a local authority pedigree of 15 years involvement, which includes contracts work for Southwark and Cumbria county council.

In terms of projects Mr Kutner says that for Iona, the first two were anaerobic digestion plants for Biogen at Gwyriad and Waen in Wales.  The latest project to become operational is the Gas-to-Grid food waste plant at Leeming.

Nick Ross provides investment management expertise and founded Iona Capital in 2010 with Mr Dunn.

Yield

Mr Ross explains that key funding comes from pension funds. “They are seeking a long term yield and are looking at the green infrastructure space, particularly the local authority side.”

And, he highlights that the investment fund interest is being backed by government: “George Osborne is particularly encouraging the local authority pension funds side to direct more assets to UK infrastructure as part of their long term investments.”

The Waen anaerobic digestion facility in north Wales supported by Iona Capital

The Waen anaerobic digestion facility in north Wales supported by Iona Capital

And the reason for the investment in infrastructure, explains Mr Ross, is that the yields are looking particularly attractive in a marketplace where interest rates are low and equities and bonds seem less attractive.

“Accordingly,” he says, “infrastructure is fighting for its own allocation. But, green infrastructure funding is attractive and also means that investors can move away from the fossil fuel agenda.”

In the past investment was dominated by funding going into PFI and other big ticket infrastructure, Mr Kutner notes. “This means that most of the funds in the market are bigger in size and have a more global agenda, potentially looking for investment decisions of £100 million or more, such as in wind power.

“Waste management and energy infrastructure for us represents a big opportunity and we have found that for the £10-20-30 million pound space there are fewer companies competing with us – it’s fair to say that this space is not well served.”

Tariffs

One of the concerns of investors has recently been the uncertainty posed by changes in support tariffs and in policies for renewable energies. However, Iona Capital appears undaunted by this.

It accepts that there “is a lot of noise and it is a sector that is always going to be tinkered with by government with subsidies and other changes”.

Mr Ross predicts that there will be “another burst of activitiy once the contract for difference regime has settled. This is exactly what has happened with solar.”

Anaerobic digestion is a particular focus of the business, with electricity and gas to grid favoured, despite the fact that the development of the facilities in Wales supported by Iona for Biogen have produced electricity but not gas. It is also keen on farm AD and products AD, such as for processes such as ice cream manufacturing.

However, the level of contracted supplies of waste material are a big factor in investment decision-making.

Investors are aware of the risks that infrastructure projects can pose and so are looking to de-risk through long terms feedstock contracts although gate-fees are less important, says Mr Kutner. “There is a view that the pricing of gate fees will decline for food waste and green waste from municipal sources. The agricultural model has seemed more robust to us and it’s also been hard in the last few years to secure long term contracts from local authorities.”

Nevertheless, this concern about local authority contracts doesn’t put investors off, he says. But the focus long-term may be not relying so much on tariffs. “We see projects that tend to be smaller and we certainly don’t require a tariff to be able to invest.”

Pipeline

Projects in the pipeline include for the recycling of abattoir waste and the food waste side remains very attractive as do commercial waste streams.

In terms of technologies, Iona is agnostic to technologies provided they are proven.


Mike Dunn
Iona Capital

Mike Dunn remarks that C&I waste streams can be “very homogenous” and so need less investment in presorting equipment. And, n terms of technologies, Mr Dunn claims that Iona is “agnostic to technologies” provided they are proven.

Despite this agnosticism, gasification, however, is still seen as a higher risk whereas biomass is more conventional.

Biomass

Nevertheless, they identify challenges with each, for example in the biomass sector data regarding waste wood volumes is hard to verify with suppliers consolidating wood and difficulties posed by potential double-counting. And, they note that gasification remains generally unproven in dealing with waste in the UK.

On a positive note, the key point for Iona Capital is that waste has to be dealt with and that there is still a need for new and old technologies to be developed across the UK. It is clear that the funds are available and for developers the company offers a knowledgeable port of call for investment needs.

 

 

 

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