Spanish fund manager sees window to invest after €2.4B renewables fundraise

Spanish fund manager Qualitas Energy is shifting to investment mode after raising its largest ever renewable energy fund in 2023, despite a challenging backdrop in other parts of the market due to rising interest rates.

The €2.4 billion final close for Q-Energy Fund V exceeded the vehicle's €1.6 billion target size as well as its €2.3 billion hard cap, and is more than double the amount raised by its predecessor, Q-Energy Fund IV.

The milestone comes amid growing capital needs in Europe's energy transition, according to Óscar Pérez, partner and chief business development officer at Qualitas.

Pérez now sees a "window of opportunity" to invest the newly raised capital as rising interest rates hit so-called "core" renewables funds and contribute to a widespread sell-off of listed renewables stocks.

That market environment is shifting the balance in favor of more private equity-type players like Qualitas, whose strategy sees it invest opportunistically across the entire value chain of development, construction and operation, before typically exiting investments after four to six years, according to Pérez.

European renewables companies secured $9.24 billion from private equity firms between Jan. 1, 2023, and Nov. 30, 2023, up more than 80% from $5.11 billion for the entire year of 2022, S&P Global Market Intelligence data shows.

Core renewables funds — which have lower risk-return profiles and hold assets for the long term — were "the stars five years ago" when rates were at zero, having been able to absorb investor capital from the fixed income market, Pérez said in an interview with S&P Global Commodity Insights.

"And now that interest rates are at 3%, 4%, this capital is pivoting ... into fixed income, so [it is] more difficult for them," Pérez said. "The level of returns that a core fund may offer ... is not so competitive when you compare with fixed income or government risk."

This trend may eventually pose a challenge for the companies whose business models are to develop and sell renewables projects at or during construction, "because the core capital is not there," Pérez said.

Still, he sees the dynamics as being part of a familiar cycle.

"There's a point in which an investor invests more in fixed income, there's a moment in which an investor looks for more risk but more return, and we try to move between these two endpoints [by] investing in the private equity world and selling in the infrastructure world," Pérez said. "We increased [Q-Energy V's] target to the hard cap because ... we saw an interesting market environment to invest."

'Value add' strategy

Qualitas has pursued a range of investment strategies since its first fundraise in 2006, committing €11 billion to help realize over 11 GW of renewables capacity.

The fund manager made its name with Fotowatio Renewable Ventures BV (FRV), the Madrid-headquartered solar developer that has now developed more than 5 GW of solar on four continents.

FRV was created by Qualitas' debut fund in the Q-Energy series and was owned by the vehicle for nearly a decade until its sale to Saudi Arabia's Abdul Latif Jameel Energy and Environmental Services in 2015.

After FRV came Vela Energy SL, a joint platform with Centerbridge Partners LP aimed at buying and building distressed solar assets in Spain. Q-Energy II eventually sold Vela to Sonnedix Power Holdings Ltd. in 2018.

Meanwhile, Q-Energy III and IV have developed a portfolio of renewables assets in markets such as Germany, Spain, Poland and Italy.

"The classical game plan for us is buy and build of smaller stuff, put it into bigger things, creating platforms, and taking development, construction, operation [risk], so always looking at generating additional value add," Pérez said.

The strategy has yielded average returns of more than 40% across the Q-Energy fund range and produced a re-up rate — the percentage of investors investing in one fund to the next — of more than 75%, he added.

"We are more similar to private equity," Pérez said. "We give ... the opportunity to our investors to reinvest in the new funds so that's why we have also the success of the fundraising, and also we have been able to follow the growth of our industry."

German wind repowering drive

With Q-Energy V raking in significant investor capital, Qualitas is shifting to investment mode.

The latest fund's main strategy will center on the repowering of older onshore wind farms in Germany, building on the foundations laid by Q-Energy III and IV. Qualitas already has over 250 people on the ground in Germany across six offices.

Around 17 GW of onshore wind capacity in Germany is older than 15 years, according to WindEurope estimates.

"[It] is a quite challenging market. It's super fragmented, in the hands of individuals in most cases, so you need to create a platform with strong capability, regional reach and the ability of buy and build," Pérez said.

More than half of the capital raised by Q-Energy V will go toward German wind repowering, he added, helping push its operating and development portfolio past 6 GW in the coming years from about 3 GW today.

At the same time, competition in the space is heating up with the entrance of new investors.

"We feel that we have a couple of years of advantage [and] that's why we are pushing so much on the German repowering," Pérez said.

Another investment strategy for Q-Energy V is focused on Italy, where Qualitas is working with local developers to finance, structure and build out portfolios of wind and solar assets.

It is also looking at the UK for both battery storage and biomethane investments — the latter having been identified as a "key trend" for Q-Energy V and future funds in the series, according to Pérez.

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