Deloitte and two associations – the German Association of Energy and Water Industries (BDEW), and Verband kommunaler Unternehmen e.V. (VKU), the German Association of Local Public Utilities – have put forward a proposal to set up an energy transition fund, drawing initial capital of €30-50bn from pension funds.
According to a paper published by the trio, the fund would attract capital from institutional investors, Pensionsfonds, pension funds for professionals (Versorgungswerke), and insurance companies, having a long-term investment horizon of 20 years or more.
The proposed fund is seen as a complement to existing facilities, also at European Union level, to finance energy transition projects, depending on the needs of energy companies, and on investment strategies and risk appetite of investors, the paper added.
It is structured as an open infrastructure fund with other sub-funds to invest over a longer period according to the “blind pool fund” principle, and in line with the principle “energy efficiency first” of the EU plan for the green transition “Fit for 55”, it added.
An established fund company, bank or asset management company “with good reputation” will be responsible for managing and structuring the fund, according to the paper.
The firms taking part in the tender will have to detail investment strategy and return targets, fund management and governance, costs for the investors, and the structure of public guarantees, it added.
Private equity investments, mezzanine or silent partnerships are among the ways to channel the capital raised by the fund for “green investments” according to Article 8 of the EU taxonomy.
The paper points at so-called “first loss tranche” as a guarantee from the state taking over the first part of potential losses in a project.
BDEW expects investments for the energy transition in Germany to be over €721bn by 2030, and of €1.2trn by 2035.
Investments are necessary to boost energy production through renewable sources, the expansion of electricity networks, the conversion of gas networks, the decarbonisation of the heating sector, and the expansion of the hydrogen economy, it said.
So far, the energy transition has been largely financed by loans, whereas energy companies must strengthen their equity position and credit rating in order to finance energy transition projects.
Hans-Jürgen Walter, partner and global sustainability leader at Deloitte, said: “The energy transition fund initially focuses on strengthening equity capital [of the companies] and the resulting leverage effects for borrowing.”
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