Asset manager Octopus Investments, one of Europe’s leading investors in renewable energy, has turned its attention to the Australian market, where it believes there will be significant investment in renewables over the next 30 years.
It has launched Octopus Early Stage Investment Company, with a target funding raising of $30 million, and is undertaking due diligence on a number of potential local solar projects.
The fund is open to wholesale investors and will tap into tax offsets available under the early-stage innovation company (ESIC) program – part of the Government’s 2016 National Innovation and Science Agenda. The ESIC program includes a 20 per cent non-refundable tax offset for investors (subject to an annual cap) and tax-free capital gains.
Nick Maidment, regional sales director of Octopus Investments, says the group’s focus is on renewables – initially solar, before looking at other technologies.
He is confident that, despite the uncertainties about energy policy, an ageing coal fleet, changing investor values and climate change will drive investment in renewables here.
To qualify for ESIC status a company or investor has to meet a number of tests, such as demonstrating that the business venture has high growth potential, and is able to commercialise an innovation. The Australian Taxation Office administers the program.
Octopus ESIC has an ATO private binding ruling confirming its status under the legislation.
Once Octopus has selected a project, the fund will finance the construction of the site through to operations. Octopus ESIC will hold the asset for about two years before selling a fully operational, revenue generating, solar site.
It is targeting a net internal rate of return of 6 to 8 per cent.
Maidment says that in the UK there are several programs similar to ESIC and Octopus is the largest manager in the space. It has a total of $15 billion of assets under management, including $5 billion of renewable energy assets, making it Europe’s largest solar site financier and manager.
It made its initial investment in Australia last December, when it deployed $450 million to acquire the Darlington Point solar farm in New South Wales.
Maidment says: “These investments appeal to family offices, high net worth and ultra-high net worth investors. These people are looking for ethical investments, such as renewables. There is not a lot of opportunity.
“Another reason for the appeal of renewable investments, and in particular Octopus ESIC, is that it provides uncorrelated returns, but also allows for investors to conduct efficient tax planning.”