APG acquired a 49% equity stake on behalf of ABP in Gemini, a solar power and battery storage project currently under development in the Mojave Desert in Nevada, USA. Sean Hannon and Ellen Bizon, senior portfolio managers on APG's Infrastructure Americas team, talk about what this investment says about the future of renewable energy and storage in the US, and the role large investors play in that.
Gemini is the largest solar-plus-storage project currently under development in the US. Everything about is huge. At its heart is a 690 MW solar array with over 2.5 million panels and a 380 MW battery system. The project covers 10 square miles. Every year it generates 2,200,00 MWh of renewable energy. The project created 2,500 jobs during construction and is projected to bring over $450 million of financial stimulus to the regional economy. It's safe to say this is not only an investment in just an asset but in the US energy transition itself. “We have a firm belief that renewable sources will play a very large role in the US energy transition”, says Sean Hannon.
Why should Dutch pension money be invested in the US solar market and in the US energy transition?
Sean: "The energy transition is a global issue, that requires global solutions. A ton of carbon that we can prevent from entering the atmosphere helps people everywhere. The solar resource available in the Western United States, where Gemini is located, is not only strong, but also predictable which makes these investments attractive for our pensioners on a risk-return basis. While we at APG look to invest in good projects in our own backyard, to maximize our impact on the energy transition, a global focus is key. For example, the Gemini Project’s land footprint, if overlaid on Amsterdam would cover 1/6 of the city, so looking to other regions for these mega projects is necessary.
We're going to need these renewable sources, and APG – on behalf of its pension fund clients - will be willing to put capital behind it. Over the course of the last five to ten years there have been many shifts in the US market, whether it is through changes in tax law, in regulations or in what renewables are capable of. But because of our belief in renewables, we've been able to invest continuously throughout this period. Whatever tomorrow may bring, we will continue to adapt and we will be able to move with the market and with the facts on the ground."
That sounds quite confident. What developments do you see?
Sean: "One thing that will have a big impact is the US’ recent Inflation Reduction Act that might be better called the Renewable Energy Act. Previously tax benefits and other incentives for renewables would expire after one or two years and now they will be in place much longer. This greatly benefits those who want to do long-term planning like APG and our pension fund clients. The act also takes away many hurdles around tax benefits for storage assets, like the batteries in this project. Those are now much better positioned going forward in the US."
Ellen: "It's interesting to add that the US has deployed a lot more batteries than the rest of the world. Last year storage capacity tripled, and it is becoming increasingly important for a stable supply and for the performance of the electricity grid. Battery capacity will also increase in other geographies. I hope that with our experience and the lessons we learned about how batteries are used operationally and how that relates to the investment case, we can help the rest of our global team."
What makes this particular project stand out for you?
Sean: "First of all what attracted us is the scale of it. Gemini is the largest asset in terms of megawatts we have ever invested in. Many renewable energy projects don't require that much equity to build them, but this deal allows us to put a lot of capital to work in a single project we believe in. We also like the fact that there is a 25-year contract for its revenues. This provides a stable cash flow for an extended period of time and that is a great match for a pension investor's needs. Finally, we were very impressed by the development team at Quinbrook and how they planned and structured this project. All the things that generally concern us and that we dig deep into when we make an investment, they were able to properly mitigate."
Looking at this deal the other way around: why did Quinbrook select APG as a partner?
Sean: "Because we have invested so much in solar already, we are very familiar with some of the issues and structuring considerations in these kind of projects. As as we went through the due diligence process, Quinbrook definitely came to understand that we are experienced in this sector. We were focused on all the right issues, and as new issues came up or as rules changed, we didn't have to take a big step back and think long and hard about what that would mean. We soon developed a partnership, a dialogue between equals. I also think that since Quinbrook is going to develop other projects, they are attracted to the fact that APG will continue to have capital. So it's possible, if this continues to go well, we could expand on our partnership in the future."
Because of its size alone, the Gemini project has an enormous impact on its environment. How did APG as a responsible investor take this and other ESG considerations into account in this deal?
Sean: "Most renewable energy projects indeed have huge footprints. With Gemini we're talking about a project with a size of ten square miles. This means there is almost always an endangered species to consider, in this case it is the desert tortoise. We developed a rehoming plan for the impacted tortoises and built a little turtle-only highway where they can cross if they need to. Another key consideration is that we're building on federal land that is next to tribal land of the Moapa indigenous people. We have already invested in another solar project that is actually on their tribal land. We're very familiar with how to be a good neighbor and how to make sure that the economic benefits are going where they should. We've taken care that the tribe is not just OK with the development but that they're fully on board and have a voice as stakeholders in the project."
How do the Moapa benefit economically from this project?
Sean: "First let me say that the Moapa are big believers in respecting the environment and they are very supportive of solar energy. They have made a decision to develop solar projects on their land in a way that will bring immediate benefits to their people, protect the land and provide ongoing opportunity for future generations. During construction of the project some tribal members have been working on it, and we have also paid for the storage of some of the major pieces of equipment on their land. And sometimes in renewables projects you have payments that go to the local community, in this case these will go to the tribe."
How important are ESG criteria in a project like this, could they be showstoppers?
Sean: "We work very hard to both identify the ESG concerns around a project up front and then ensure they will be mitigated before we invest. Engaging the Moapa tribe for their support and working to protect the desert tortoises are good examples of how we successfully address ESG issues that arise during the process. Either of these could have been a showstopper. We also make sure our partners have strong ESG policies and practices. That goes a long way to avoiding red flag issues. With Gemini for example, our partners had already considered that they need to source solar panels from suppliers that have appropriate labor and human rights standards. The contracts as our partner wrote them are pre-wired to deal with such an issue. If someone violates these principles, they are out of the project. And of course, our partners have to meet APG’s ESG standards. If the seller's standards were insufficient, we would work those in the contract or it would be a showstopper for us."