|The £2.5 billion Beatrice offshore wind farm in Scotland, co-owned by Copenhagen Infrastructure Partners. The Danish fund manager has made a name for itself financing early-stage wind projects around the world.
Source: Beatrice Offshore Windfarm Ltd.
When Copenhagen Infrastructure Partners K/S set up its first renewable energy fund in 2012, one of its initial investments was in Cape Wind, a project off the coast of Massachusetts that had been launched more than a decade earlier and was meant to kick-start offshore wind development in the U.S.
While that project was later scrapped in the face of heavy opposition, Copenhagen Infrastructure Partners, or CIP, has gone on to become one of the most active investors in the wider renewables industry, successfully financing offshore wind projects around the world while pushing into new markets and technologies, and taking risks far outside the comfort zone of other fund managers.
"They are trying to be the Tesla Inc. of this world," said Elchin Mammadov, an analyst at Bloomberg Intelligence. "Their risk appetite is much bigger than many other infrastructure funds, but I think it's the right thing to do. You want to be ahead of the curve."
Set up by four former executives at DONG Energy, the Danish oil and gas company that would later rebrand as Ørsted A/S, CIP has made a name for itself as an experienced developer with the industrial know-how to match its financial muscle.
The firm's latest fund, its seventh, had raised €4 billion from institutional investors by the end of September and could eventually reach as much as €7 billion — a far cry from CIP's beginnings more than eight years ago, when it started out with an €800 million commitment from PensionDanmark A/S, Denmark's largest pension fund.
The growth is as much a sign of the booming renewables industry as it is of CIP's active approach. Already investing some of its newly raised capital, the company has accelerated its deal-making in 2020 even as infrastructure funds have broadly slowed their renewable energy spending.
"We've managed to keep ourselves very busy," Michael Hannibal, a partner at CIP responsible for its offshore wind activities, said in an interview. Offshore wind makes up about a third of CIP's investments, with the rest split between onshore renewables and other technologies such as hydropower, biomass and offshore transmission.
During a normal year, Hannibal, who is based in Copenhagen, would have been on the road visiting the company's growing number of offices and projects, which now stretch from the U.S. to Taiwan, Japan and Australia. The coronavirus pandemic put a stop to those plans but, as it turned out, did not do much to dent CIP's activity. As of early December, the company had signed 11 deals in 2020, its highest total ever, according to data from Preqin.
"When the pandemic hit and people couldn't travel and investors couldn't join us, we [wondered] what kind of impact that would have on our timing. But I'm super impressed how fast people have adapted," Hannibal said. "We have managed to basically keep our time schedule and also get the capital in as expected."
Hannibal had been CEO of turbine-manufacturer Siemens Gamesa Renewable Energy SA's offshore wind business before he joined CIP in 2017, bringing with him deep knowledge of the global wind supply chain. Meanwhile, CIP's four founders had been involved in Ørsted's early efforts to branch out into renewable energy.
That industry background shows in the fund manager's focus on greenfield development, which typically involves shepherding large-scale projects from the planning stage all the way through permitting and construction. Other investors hoping to raise their returns in a maturing industry have increasingly followed that model by taking on more construction risk instead of simply buying completed projects.
"They know what they're doing, they're industry people ... that's their competitive advantage," Mammadov said of CIP. Although he doubts the company's model will become the norm, he expects more players will try and replicate it, whether that means investing earlier in projects or hiring industry insiders with operational experience.
"I think they are the trendsetter for the industry as a whole," Mammadov said.
CIP's wide-ranging experience is a key selling point for those that partner with the company. In one case, the Danes have teamed up with Iberdrola SA subsidiary Avangrid Inc. for a second attempt to build the first large-scale offshore wind project in the U.S., the Vineyard Offshore Wind Project in Massachusetts.
Eric Thumma, Avangrid's interim head of offshore wind, emphasized in an interview in September that while CIP brought financial expertise to the project, its track record of hands-on development was another major factor that sealed the tie-up. "They also brought technical people with a long amount of experience doing offshore wind from the beginning of the market in Europe," he said.
But CIP's somewhat unique approach also means that the company, in addition to partnering with utilities like Iberdrola or SSE PLC, is increasingly becoming a competitor for the traditional incumbents in the renewables sector.
"They are much more focused than many oil companies when it comes to actually investing in projects today. And they've had more success," said Mammadov, singling out Norwegian oil major Equinor ASA as perhaps the only exception. "They are increasingly both a partner and a competitor to utilities."
Alongside Ørsted and a handful of other developers, CIP is now pushing into offshore wind markets in Asia. It has projects in Taiwan and this year formed partnerships to build wind parks in Japan and Vietnam.
In Australia, the company has also gotten involved in a vast project to produce hydrogen from renewable energy. Hannibal noted the project is still in an early stage, but said the company is interested in additional opportunities elsewhere, both in producing the fuel and turning it into ammonia, where it can be used as fertilizer or shipped around the world.
CIP has also gained a new investor in wind-turbine maker Vestas Wind Systems A/S, which announced in December that it would buy a 25% stake in the fund manager and become an anchor investor in a new fund focused on power-to-X technologies, such as hydrogen production. CIP, which now manages about €12 billion, has said it wants to grow its assets to between €75 billion and €100 billion by 2030.
The company's decision to move into hydrogen, which is attracting interest from utilities and oil majors but few infrastructure funds so far, has followed a similar playbook it deployed a decade ago in becoming one of the first financial investors to move into offshore wind.
Hannibal said CIP had been looking at the hydrogen sector for quite a while and simply saw a promising technology with the right conditions in Australia to join a pilot project. Plus, its in-house experts were already familiar with the off-take market for the fuel.
"It was kind of a natural step for us," he said.