Canadian pension fund CDPQ snaps up stake in UK hydropower company

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A leading Canadian pension fund is buying a 25 per cent stake in UK hydropower group First Hydro Company in a sign of growing investor appetite for electricity storage assets.

Caisse de dépôt et placement du Québec (CDPQ) is buying the stake from Brookfield Asset Management for £500mn, giving First Hydro an enterprise value of £2bn. France’s Engie owns the remaining 75 per cent.

It marks CDPQ’s first investment in pumped hydropower after major investments in renewable energy, including its Velto Renewables subsidiary that owns about 218 megawatts of solar capacity in Spain, enough to serve hundreds of thousands of homes.

First Hydro owns two pumped hydropower plants, which store electricity by pumping water between reservoirs and then releasing it when needed to drive a turbine to generate electricity.

The technology is critical for the green transition and is set to play an important role in British electricity supply as the new Labour government tries to reach its target of decarbonising the power system by 2030.

Emmanuel Jaclot, head of infrastructure at CDPQ, said it was interested in investing in energy storage assets that could help balance out intermittent supplies of electricity from the wind and sun.

“We strongly believe a lot more renewables are going to be added to the system and these kinds of assets are necessary for the grid to maintain stability,” he said.

First Hdyro’s stations, in Dinorwig and Ffestiniog in the Snowdonia region, have a combined capacity of more than 2 gigawatts, capable of supplying electricity to about 2mn homes.

CDPQ manages more than C$450bn (US$330bn) of assets around the world for pension plans and insurance companies. Its UK investments include stakes in Heathrow airport and the London Array offshore wind farm.

Brookfield bought the stake it is selling to CDPQ from Japanese trading house Mitsui in 2017.

Announcing the sale to CDPQ, Ignacio Gomez-Acebo, managing director at Brookfield, said it was “pleased to have supported First Hydro throughout our ownership period”.

CDPQ’s purchase comes as the UK government, which is set to host a major investment conference in October, is trying to bolster investment in Britain.

That aim suffered a setback when Singapore’s sovereign wealth fund decided against investing in the UK’s regulated water, electricity and gas utilities because of regulatory challenges in the water sector, said a person close to the fund, confirming reports in The Sunday Times.

Jon Phillips, chief executive of the Global Infrastructure Investor Association, warned that investor sentiment towards the UK had “fallen significantly in recent years due largely to concerns about the deteriorating outlook in regulated utilities, especially water”.

However, CDPQ’s Jaclot said the government was “taking the right steps”.

“The UK is investable for us, no debate there,” he said. “There is bipartisan support on the energy transition.”