LGPS Support Augments UK Solar Fund

As institutional investors help further surpass fundraising target, NextEnergy Capital calls on Labour government to provide policy certainty and tackle grid connection challenges.

Solar energy-focused asset manager NextEnergy Capital’s (NEC) UK-focused fund has exceeded its original fundraising target by 30% thanks to additional capital provided by local government pension schemes (LGPS), bringing total funds committed to £653 million (US$840.5 million).

Launched in December 2021 with a £500 million target, NextPower UK ESG (NPUK) had already exceeded its target through a third close at £595 million in February the following year. At the time, the asset manager said it would work towards a hard cap of £1 billion, aiming to capitalise on the “positive momentum” behind the fund.

“This is a testament to NEC’s leadership in the solar energy sector at a critical time,” said Michael Bonte-Friedheim, NextEnergy Group’s Founder and CEO. “As a private new-build solar strategy that focuses on acquiring utility-scale solar assets at the ready-to-build stage in the UK, investors benefit from the market-leading expertise we bring alongside our hands-on approach to value creation and optimisation.”

NPUK ESG is a private solar fund focused on unsubsidised new-build solar plants in the UK, which could produce enough clean energy to power the equivalent of nearly 500,000 households and offset nearly 200,000 carbon-emitting cars each year, NEC claims. Through the vehicle, NEC has already acquired five utility-scale solar assets totalling 269 megawatts (MW) – two of which are operational.

Additional capital in the latest funding round came from London CIV, while previous investors in the fund include LGPS Central, Border to Coast Pensions Partnership, Merseyside Pension Fund, Brunel Pension Partnership, Strathclyde Pension Fund, and others from Japan and the Middle East.

“The fund’s strategy has aligned really well with that of the LGPS community, and it’s great to see so many LGPS investors backing renewable energy assets here in the UK,” Shane Swords, Head of Investor Relations at NEC, told ESG Investor.

Swords attributed the fund’s success to a large pipeline and swift capital deployment, which commenced just seven weeks after the fund’s first close – with the fund now having nearly 500MW in capacity.

In 2022, the UK Infrastructure Bank had provided cornerstone match-funding capital of £250 million, after which several LGPS investors began backing the fund – gaining access to solar photovoltaic projects in local jurisdictions.

“We’ve been active in solar since 2007, and we’ve got a long track record given we did our first UK projects around then. This is a continuation of our normal strategy,” said Swords. “[The investment] demonstrates the belief and trust in what NextEnergy Capital is doing with investors, its focus on solar, as well as the track record in investments.”

NPUK is NEC’s fourth institutional fund, having since launched a fifth one that invests in projects internationally. All the funds are classified under Article 9 of the EU Sustainable Finance Disclosure Regulation and EU Taxonomy.

The firm currently has approximately 1.5 gigawatts (GW) of existing and planned UK solar and energy storage capacity across more than 100 assets – equivalent to almost 10% of the UK’s total 17GW solar capacity. NextEnergy has invested in more than 400 solar plants in total, and has US$4 billion in AUM.

“There is a local government angle here, with the solar projects being in different parts of the UK,” said Swords. “It is UK-only focused, it’s renewable energy, and it helps with the government’s renewable energy and net-zero targets.”

Setting a solar plan

Earlier this week, NextEnergy offered the new British government recommendations to deliver more than 50GW of solar by 2030. Prior to his election, now-Prime Minister Kier Starmer had said he wanted to turn the UK into a “clean energy superpower” by trebling its solar energy by 2030, while also increasing other renewables.

“The new government’s robust policy commitment to solar is good news,” said Bonte-Friedheim. “We encourage it to take action to increase the UK’s international competitiveness, provide new grid connections, and increase stability for investors looking to support the UK’s solar success story.”

NextEnergy called on the government to unlock solar growth by providing policy certainty through a “clear, consistent, pro-solar approach” to energy policy, direct investment into the sector to add new capital, and supporting the UK’s international competitiveness by providing investment relief to “level the playing field” with fossil fuels and other countries.

The firm underscored the importance of upgrading the country’s electricity grid network as a matter of priority, alongside enacting regulatory changes to unlock capacity from existing infrastructure – a pervasive issue for solar and other renewables. In addition, it highlighted the need to unblock the planning system to enable the solar industry to scale up at pace.

“In the UK, what’s going to be important to achieve the goals for renewables is the stability of the infrastructure pertaining to it, such as grids,” said Swords. “There’s significant desire to create more renewables. It’s not just solar – it’s onshore wind, offshore wind and beyond. But in order to achieve top targets the government requires a detailed roadmap and buy-in at every level.”

Last week, trade association Solar Energy UK also called on the government to issue an ambitious roadmap and send a “clear signal” to the solar industry to unlock investment, create green jobs and generate cheaper electricity. The organisation has welcomed Labour’s commitment to tackle grid connection delays, which the party’s manifesto described as the “single biggest obstacle to the deployment of cheap, clean power generation and electrification of the industry”.

The International Energy Agency has previously described electricity grids as the “weak link” in the energy transition. In March, the National Grid Electricity System Operator proposed a £58 billion investment in the UK’s electricity grid between 2030 and 2035 on top of approximately £54 billion worth of grid works already planned by 2030.

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