chapter 14
Going green
1 Macquarie’s GIG bought the stake in Iberdrola’s ScottishPower Renewables East Anglia ONE offshore wind farm on 12 August 2019. ScottishPower runs it. https://www.macquarie.com/au/en/about/news/2019/green-investment-group-to-partner-with-iberdrolas-scottishpower-renewables-on-east-anglia-one-offshore-wind-farm.html
3 As of the 2021 annual update, 5 October 2021. https://www.greeninvestmentgroup.com/en/p-r-2021/progress-report-2021/year-in-review/impact-and-activity.html
4 Kruisvallei Hydro, Free State Province. https://www.greeninvestmentgroup.com/en/news/2021/uk-climate-investments-marks-delivery-of-254-mw-of-renewable-energy-projects-in-south-africa.html
5 Partnerships with Fortum in New Delhi, CleanMax Solar in Mumbai and Vibrant Energy in Hyderabad. https://www.greeninvestmentgroup.com/en/p-r-2021/progress-report-2021/year-in-review/impact-and-activity.html
6 Jozwin Wind Farm and Scieki Wind Farm. https://www.greeninvestmentgroup.com/en/p-r-2021/progress-report-2021/year-in-review/impact-and-activity.html
7 Curiously, both the 2020 and 2021 annual reports feature an image of the same green field, which turns out to be on the Tantanoola property in Western Australia, operated by the Macquarie-managed enterprise Viridis Ag. Incidentally, the East Anglia ONE offshore wind farm is on the introductory pages of the 2020 report.
8 This was Novera Macquarie Renewable Energy Limited (NRME), which came with an initial portfolio with an installed capacity of 107 MW, 95 MW of it operational, with a further 21 MW expected to be added from the completion of the Mynydd Clogau wind farm in Wales and an expansion of other sites. It also held some hydro power and landfill gas-fired power station assets. Macquarie put in an equity investment of A$40.8 million. https://www.power-eng.com/renewables/novera-and-macquarie-bank-establish-renewable-energy-jv/#gref
9 MEIF bought EPR from Electra Investment Trust in a deal announced on 15 March 2005. The dominant biomass operation in the UK, it had five renewable energy generating plants and a 50 per cent interest in two wind farms. According to Electra, it sold its interests for £55 million. https://www.epiris.co.uk/media/epiris-news/electra-announces-sale-of-interest-in-energy-power-resources-and-fibrothetford/
MEIF then bought the six wind power projects, three apiece in France and Sweden, from Eurowind International, a group of private investors. Some were already operational, some under development. https://www.windpowermonthly.com/article/962786/wind-portfolio-france-sweden-macquarie-bank-europe
10 Financially, Macquarie might put a chunk of equity in at the start to get a deal to the finish line and then the long-term owner would take the equity out, with Macquarie making a return on the risk compression between the development stage and completion. Later, through the asset management arm, Macquarie would instead become long-term owners, but from the investment banking perspective this is how it started.
11 Its founder, Thomas Houle, would go on to build and lead Macquarie Capital’s Americas renewable development and investment team after Macquarie bought out the rest of Fremantle; it would develop two solar development platform investments, one with a 1.8 GW portfolio of solar projects across nine states and another with 2.5 GW of solar and storage greenfield projects: https://www.linkedin.com/in/houle01/
In the United States, progress was stymied by the global financial crisis. ‘I think, sadly, we at Macquarie missed the boat a little bit,’ says Charles Wheeler, who left Macquarie after 24 years to build his own renewables practice, Greenbacker Capital, in New York. ‘I had the vision of the renewables thing in 2007 and 2008. If we’d been able to build the momentum that I was trying to in 2007, we would have been an absolutely dominant player by now.’
But when the crisis came, ‘a lot of what we were doing in renewables required access to capital, and there wasn’t any capital to access. So you just had to sort of drop the ball.’ He remembers one small company that was looking to raise capital to do residential solar across the US and has since turned into one of the major players in that market; he could have got a 50 per cent stake in that company for $5 million back then, but there was just no appetite to take on new risks. ‘That company’s worth billions today.’
He did subsequently try to launch a renewable energy infrastructure fund in the US, but found two problems with the institutions he would have hoped to back it: one, they were reeling both from the financial crisis and from some of the transactional activity Macquarie had conducted in its funds ‘that wasn’t the flavor of the month, let’s put it that way’; and two, ‘the most horrifying part, which was that a lot of the US institutions thought renewables was just a fad and really didn’t have a future.’
Eventually the institutional mood caught up with Wheeler’s ideals. And not just his: when you look across the many alumni of Macquarie who have started their own shops, many of them—David Russell and his team at Equis, Michael Dorrell and the many others at Stonepeak—have a clear focus on renewables.
12 This was the Macquarie Mexico Infrastructure Fund, whose launch was announced on 14 January 2010 with Ps5.2 billion (then US$408 million) in initial commitments from Mexico’s national infrastructure fund, FONADIN, and seven leading Mexican pension funds. It followed Mexico’s federal government announcing a National Infrastructure Program mandating public and private investment in infrastructure in August 2007. https://www.macquarie.com/au/en/about/news/2010/macquarie-group-launches-mexican-infrastructure-fund.html
13 Macquarie’s MMIF fund had a 32.5 per cent interest in the consortium, Macquarie Capital 22.5 per cent, and Fomento Económico Mexicano (FEMSA) 45 per cent. Together they bought Energía Alterna Istmeña and Energía Eólica Mareña from subsidiaries of Preneal for a transaction enterprise value of MXN$1.06 billion (then US$89 million). These project companies owned the wind energy project in an area where, it turns out, average regional wind speeds exceed 8.5 metres per second. https://www.macquarie.com/au/en/about/news/2011/macquarie-mexican-infrastructure-fund-acquires-interest-in-late-stage-wind-energy-project-in-oaxaca-mexico.html
15 https://questions-statements.parliament.uk/written-statements/detail/2015-10-15/HCWS239
16 The quote continues: ‘. . . capable of operating with private sector capital rather than relying on public funding for its investments. It will allow the bank to access a much greater volume of capital than would be the case if GIB were to remain in government ownership meaning it can grow its business, move into a wider range of sectors and have greatest possible impact in mobilising investment so that more green projects get financed than would otherwise be the case.’ He added: ‘A key objective in moving the company into the private sector is that it should be free to borrow and raise capital without this affecting public sector net debt. Giving GIB this freedom is essential if the company is to invest in accordance with its ambitious green business plan.’
17 . . . according to the UK government. There is a further 5 GW in pre-construction, plans for a further 11 GW, and there is a stated target for 40 GW of offshore wind energy by 2030, including 1 GW generated by floating technologies—which you may recall is something Macquarie and Total are attempting to pioneer in South Korea. In the British Energy Security Strategy published in April 2022, this target was increased to 50 GW, 5 GW of it floating.
18 The other was Sustainable Development Capital, a consortium of the Pension Protection Fund, Mitsui, General Electric and the insurer John Hancock. It would later launch a legal challenge against Macquarie’s victory. https://www.theguardian.com/environment/2017/mar/01/green-investment-bank-sale-sdcl-macquarie
19 https://www.theguardian.com/environment/2017/mar/01/green-investment-bank-sale-sdcl-macquarie
20 Specifically, Doug Parr, policy director at Greenpeace UK, said: ‘The world has changed since the 2015 decision to privatise the GIB, and there is an urgent need to protect its green purposes from being diluted.
‘But the government’s plan to protect them is toothless. There’s almost nothing to stop Macquarie from misusing this vital public institution by failing to invest in early-stage renewables, and even funding fossil fuel projects like fracking.’ https://www.theguardian.com/environment/2017/mar/01/green-investment-bank-sale-sdcl-macquarie
21 https://www.ft.com/content/d92a915e-8e2c-11e6-8df8-d3778b55a923
23 https://www.thetimes.co.uk/article/enter-the-vampire-kangaroo-rs62j9f2lc3
24 https://www.rollingstone.com/politics/politics-news/the-great-american-bubble-machine-195229/
25 In these years regions were broken out as a percentage of the whole, including Australia. Specifically, in 2016, EMEA was 25 per cent of total income; in 2017, 24 per cent; in 2018, 29 per cent; in 2019, 28 per cent; in 2020, 29 per cent; in 2021, 23 per cent; in 2022, 20 per cent.
But the total income figure for EMEA, at A$3.511 billion, is well up on the previous year’s A$2.863 billion despite being a smaller percentage of the whole. This is mainly because of America’s outsized performance in 2022 (A$8.246 billion total income, 48 per cent of group total).
26 See 2006 annual report section 1.3, which says that international income was A$2 billion for the twelve months to 31 March 2006, and that Europe, Africa and the Middle East made up 34 per cent of that. International income represented 48 per cent of total operating income.
27 London serves as the regional headquarters for the business in Europe, the Middle East and Africa, with twenty offices across fourteen markets and more than 2600 employees. The vast majority are based in the UK. Macquarie has arranged and invested £50 billion plus in UK infrastructure since 2005 with, at the time of writing, plans to invest another £12 billion.
28 Headcount in the European mainland grew 37 per cent between 2019 and 2022, with key hubs in Ireland, France, Germany, Spain and Italy. Senior Macquarie Capital appointments have been made or are under way in Germany, France, Spain, Italy and the Netherlands; there is strong Commodities and Global Markets growth in Spain, Italy, France and Benelux in particular; and the bank is rolling out new transport, social and digital infrastructure investments across Europe, including Central and Eastern Europe.
29 It is oddly charming today to think that Macquarie ever made a business out of telephone directories. Through Macquarie Capital Alliance Group, a sort of private equity cashbox, it bought the Scandinavian telephone directories business TDC Forlag for $1 billion in October 2005, one of a sequence of similar deals. https://www.afr.com/companies/macquarie-buys-1bn-directory-20051017-jj6o4
30 Real estate is also worthy of note, since the 2018 acquisition of GLL Real Estate Partners, a large German-headquartered real estate fund manager.
31 CGM has been growing strongly across European markets with Spain, Italy, France and Benelux standing out. Expansion of the metals, LNG/gas, power and carbon markets businesses in EMEA are considered priorities. ‘We have a carbon business. It’s been growing and hiring,’ says Plewman. Aside from trading, it invests in projects, such as cookstoves in Africa, that generate carbon credits which can then be on-sold to clients.
32 Brexit ‘has clearly resulted in a higher cost base: we’ve had to open a bank in Dublin, and a branch and premises,’ says Plewman. ‘However, we’ve grown our business a lot more than we had expected. It’s allowed us to have more focused penetration on certain countries with local staff.’
33 Kemble Water was the consortium name, Kemble being a town near the headwaters of the Thames. Macquarie said Kemble was the largest consortium it had ever assembled, bringing together investors from Europe, North America and Australasia. At the time of acquisition, Macquarie and entities associated with it held 47.65 per cent of the consortium.
A position paper published by Ofwat, the body responsible for the regulation of privatised water and sewerage systems in England and Wales, in 2007 hints at the bafflement regulators sometimes felt at Macquarie’s labyrinthine arrangements. Note 2.4 speaks of ‘concerns regarding the extent of information that is publicly available regarding the Macquarie Investors which own a 47.65 per cent stake in Kemble (i.e., the Macquarie-managed or associated entities which consist of Macquarie European Infrastructure Fund LP (MEIF), Macquarie European Infrastructure Fund II (MEIF II), Macquarie Diversified Infrastructure Fund (MDIF), Macquarie Prism Pty Ltd (MPP), Macquarie-FSS Infrastructure Trust (MFIT) and LODH (Macquarie Infrastructure Fund LP (MLODH)).’
The document cites numerous concerns by Martin Blaiklock, a consultant in the private funding of public utilities and a former director at the European Bank for Reconstruction and Development, even before Macquarie took over. He highlighted an instance of a Macquarie-owned fund receiving payment of an extraordinary dividend as a result of refinancing relating to its ownership of the M6 Toll Road, and considered that Macquarie had asset stripped South East Water Limited under its ownership by paying significant special dividends in 2004–05 and 2005–06. https://www.ofwat.gov.uk/wp-content/uploads/2015/11/pap_pos_tms_acqtmskemble.pdf
34 It’s not easy to make a business of thirteen million wastewater customers look photogenic so the bank opts for some settlement pools in a sunset overlaid with a map of South London.
35 Among the future stars who cut their teeth in this area was John Pickhaver, now co-head of Macquarie Capital for Australia and New Zealand. When he turned up for his first day in London, Graham Conway, who was running the utilities team at the time, told him that after Southeast Water, MEIF had just been shortlisted on a bid for another water company, Mid-Kent Water. ‘Congratulations, this is your seat, welcome, you’re running the model,’ he remembers Conway saying. ‘I’d just turned up. I’d said hi to one person. I’d just walked through the door and I was running the model. There’s a deep end, and you’re in it.’
36 https://www.bbc.co.uk/sounds/play/b0931hl5
37 https://www.thisismoney.co.uk/money/article-9877561/Vampire-kangaroo-bank-Macquarie-tak
38 https://www.ft.com/content/b121a9e6-0a68-11e7-97d1-5e720a26771b
39 Specifically its infrastructure arm, Borealis, founded by Michael Nobrega whom we met in Chapter 6.
40 https://www.ft.com/content/63ae6f88-08a5-11e7-97d1-5e720a26771b
41 https://www.ft.com/content/2022f9a8-50d7-11e7-bfb8-997009366969
42 https://www.ft.com/content/61bd8f0a-9181-11e7-bdfa-eda243196c2c
43 https://www.thetimes.co.uk/article/enter-the-vampire-kangaroo-rs62j9f2lc3
45 More precisely, a Macquarie-led consortium comprising Macquarie Group, MEIF 5 and Universities Superannuation Scheme completed the acquisition of the UK Green Investment Bank Limited from HM Government. This followed an earlier announcement on 20 April. https://www.macquarie.com/au/en/about/news/2017/macquarie-led-consortium-completes-acquisition-of-the-green-investment-bank.html
46 Those commitments in a little more detail: that it would work with the Green Purposes Company Trustees to ensure investments were aligned with its green purpose—the so-called golden share; that it would publish its own annual report; that it would keep GIB’s teams and offices in London and Edinburgh, with Edward Northam, GIB’s head of investment banking, as its leader; and that it would change the name to Green Investment Group, in order to overcome legal and regulatory hurdles that would arise in some markets from using the term ‘bank’.
Macquarie said it would make Green Investment Group its primary vehicle for principal investment in green projects in the UK and Europe, and would consolidate its own businesses into that vehicle.
Mark Dooley, who had joined Macquarie in 2005 from ABN Amro, ended up being the CEO of the business when it developed a more global mandate; Northam is today head of UK and Europe. Shaun Kingsbury, who was CEO of GIB, did not join Macquarie.
47 https://www.greenpurposescompany.com/pdfs/annual-reports/GPC%20annual%20Letter%202020%20FINAL.pdf
48 https://www.greenpurposescompany.com/pdfs/annual-reports/GPC%20Annual%20Letter%202019%20-%20final%20signed%20250919.pdf. See Macquarie/GIG’s response here: https://www.greenpurposescompany.com/Response%20to%20GPC%20letter.pdf
49 Hutchings was previously a civil servant at the Department of Energy and Climate Change. The other trustees were James Curran, former CEO of Scottish Environment Protection Agency; Tushita Ranchan, for former CEO of a renewable energy company; Robin Teverseon, chair of the House of Lords EU select sub-committee for Energy and Environment; and Peter Young, former chair of the Aldersgate Group. They were all appointed in August 2017 immediately prior to the sale of GIB.
50 https://www.greenpurposescompany.com/pdfs/annual-reports/GPC%20annual%20Letter%202020%20FINAL.pdf
51 The Galloper Wind Farm is off the coast of Suffolk, England, and Race Bank is off the cost of Norfolk, again on the English East Coast. At the time of takeover GIB owned an offshore wind fund which housed numerous other assets, such as Rhyl Flats in Liverpool Bay and Sheringham Shoal in the North Sea, and a stake in Gwynt y Mor next to Rhyl Flats. In January 2017 came its biggest single investment, in the Lincs offshore wind farm off Lincolnshire. Waste and energy assets included Kemsley in Kent, Millerhall near Edinburgh and a new plant in Flintshire, North Wales. In the 2017 annual report 46 per cent of GIB’s investment portfolio was offshore wind, 34 per cent waste and bioenergy, 14 per cent energy efficiency and 6 per cent onshore renewables. https://www.greeninvestmentgroup.com/assets/gig/corporate-governance/Green%20Investment%20Bank%20Annual%20Report%202017.pdf
52 ‘For us, what GIB/GIG has done is it has given us the capability to create assets in areas where people are still working out how to actually do it,’ says Frank Kwok. ‘A few years ago it was all about solar and wind. Now it’s about hydrogen and batteries. You’ve got to create these assets, and my colleagues in GIG have the deep expertise to not only understand all that but make it scalable.’
53 https://www.macquarie.com/au/en/perspectives/spotlight-on-quadrant-energy.html and https://www.macquarie.com/au/en/about/news/2018/brookfield-business-partners-and-macquarie-announce-agreement-to-sell-quadrant-energy.html
54 Even if some outside Macquarie were not seeing the light about hydrogen, in truth the group had already looked at it in some detail. Oliver Yates, who after leaving Macquarie in 2011 had gone on to become CEO of the Clean Energy Finance Corporation, had returned to Macquarie to run a business called Lead Pathway Investments in 2017. He had been talking to Moore about the idea of acquiring Green Investment Bank, which he had been involved in as a partner organisation, and the two agreed that they should invest in technologies and projects that were on the decarbonisation pathway but were longer-term bets.
Yates set up a proprietary fund, called Pathway Fund, to invest in longer-dated investments including hydrogen and ammonia. The fund invested into Asian Renewable Energy Hub in Western Australia, an early hydrogen project, among other things.
55 A brief hydrogen primer. Grey hydrogen is derived from natural gas and produced from fossil fuels, and is not commonly considered renewable, except as a bridging energy between higher and lower polluting fuels.
Blue hydrogen comes from the same sources, with the difference that the CO2 that comes from the process is captured at production and stored using carbon capture and storage techniques. Green hydrogen is formed in a completely different way, through electrolysis, commonly driven by renewable sources such as wind and power. https://www.jdpower.com/cars/shopping-guides/whats-the-difference-between-gray-blue-and-green-hydrogen
57 Other investments in new low carbon technologies include hydrogen through Cadent in the UK and Open Grid Europe and Thyssengas in Germany; carbon capture through Storegga; and e-mobility.
58 https://www.afr.com/companies/energy/macquarie-trains-sights-on-green-hydrogen-20211214-p59hd7
59 https://www.afr.com/chanticleer/macquarie-to-fill-the-void-at-cop26-20211007-p58y6z
60 She is a Commissioner of the Global Commission on Adaptation, and was appointed to the Climate Finance Leadership Initiative by Michael Bloomberg as the UN Special Envoy for Climate Change. She has made Macquarie a foundation member of the Glasgow Financial Alliance for Net Zero, and leads the work stream to mobilise private capital for critical climate solutions in emerging markets. At COP26 she appeared on an emerging markets climate panel with UN Climate Envoy Mark Carney and World Bank President David Malpass. Just before COP26 she attended the UK Government’s Investment Summit where she interviewed COP President and former UK Business Minister Alok Sharma.
