KGAL launches its first Impact Fund building on its long-standing renewable legacy

Carsten Haubner, Portfolio Manager of KGAL ESPF 5 explains how the new fund, focused on European greenfield renewable energy assets, will contribute to the EU Green Deal.

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KGAL Investment Management GmbH & Co. KG (KGAL) has launched its first renewable energy Impact Fund, named KGAL ESPF 5.

The fund is classified under Article 9, the highest sustainability category under the EU Sustainable Finance Disclosure Regulation. As an impact fund, KGAL ESPF 5 will make a measurable contribution to the achievement of the 17 UN Sustainable Development Goals, especially goal 7 (clean and affordable energy) and goal 13 (climate action). In addition, the fund management pays particular attention to sustainability along the entire value chain of the fund projects in accordance with the rules of the EU taxonomy.

Carsten Haubner, Portfolio Manager of KGAL ESPF 5 talked to ELN about the importance of the fund: “KGAL ESPF funds have provided huge amounts of capital to the renewable energy investment space over the last decades, and ESPF5 will go beyond and enhance this profile by adding an impact angle.

“Bringing additional renewable energy generation capacity into the European power mix is the most important counteract to fight climate change and underpinned by the EU’s Green Deal aiming to reduce greenhouse gases by 55 per cent by 2030.

“There will be a huge demand for green electricity in the coming years and this is exactly what investors are targeting. ” He also said that the overall transition to net zero 2050 can only be achieved “if we are able to manage our way of thinking away from decarbonising just the power sector into all other sectors, including industry, transportation and agriculture – to which green electricity acts as an enabler.”

The new fund builds upon the strong performance of its predecessor fund KGAL ESPF 4, which closed with €745 million (£636m) in equity commitments at the end of 2019. “To increase the climate impact of our investments, KGAL has most recently focused on investment activity in Poland, a market in which adding renewables creates a very strong impact due to its current fossil fuels orientated generation mix.

“Markets in CEE tend to be more carbonised than for example Germany, Spain or France, simply because their renewable footprint is less mature. So, here we aim to optimise the impact created by our investments by focusing also on markets that have higher carbonised levels.”

The new investment product also aligns with the increasing demand from investors for new opportunities in the renewables sector.

Mr Haubner added: “The appetite of investors for renewable projects across Europe has increased over the last couple of years. We see a lot more capital flowing into the market, also from investors who, let’s say, ten years ago would not have touched renewables but are now open to the asset class.”

He believes the classification under Article 9 makes the fund even more attractive to investors: “It gives the investors the chance to dedicate capital clearly into the impact direction, which our fund is addressing.”

Asked about which renewable energy investments will be prioritised through the new fund Carsten Haubner said: “The fund is allowed to invest in any renewable generation technology, but due to project availability and the maturity level of the markets and technologies we are clearly focusing on the traditional generation technologies, wind power and solar PV.”

The new fund will also support energy storage and hydroelectric generation.

Mr Haubner said that KGAL’s investment strategy for the future focuses on the addition of renewable sources to the European energy mix:

“We want to bring additional renewable generation capacity to the market. On the one hand, KGAL ESPF 5 will support projects under development in established markets, and on the other hand, the fund will support additional capacity by selecting investments during construction phase in some other European markets, which are less mature. By doing so, we create the additionality investors are in search of. “We are excited about the opportunities ahead as our deal pipeline is extremely buoyant.

“The three pillars of our investment strategy remain unchanged – we will combine the acquisition of project rights in the development and construction phase with value-add approaches for undervalued existing assets and tapping new markets in the develop-and-hold area – to help investors achieve their sustainability and return goals, complemented by our core principle to maintain a balanced risk-return profile.”

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