Q&A: David Giordano, BlackRock
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Q&A: David Giordano, BlackRock

BlackRock has been a driving force behind key M&A deals in the renewables space across the Americas. The New York-based investment manager joined hands with First Reserve to buy a stake in PEMEX and IEnova’s 462-mile Los Ramones II gas pipeline project in Mexico, earlier this year (PFR, 3/30). More recently, the company acquired a 90% stake in a pair of wind farms from Des Moines, Iowa-based sponsor RPM Access (PFR, 4/24). In this PFR exclusive, David Giordano, managing director at BlackRock talks to Managing Editor Nischinta Amarnath about the company’s role in M&A transactions, the benefits of its partnership with EDF Renewable Energy and a burgeoning interest in investments involving greenfield renewable projects. Giordano also discusses the intrinsic risks renewables-focused project finance players face in Latin American markets like Brazil and Chile.

PFR: Tell me about the alternative investment group at BlackRock and your role there.

Giordano: BlackRock Alternative Investors is a division within the firm that focuses on less liquid or illiquid investments. BlackRock Alternative Investors, has $114 billion under management as of March 31, 2015. This includes hedge funds, real estate, private equity, fund of funds and the infrastructure group, which is what we fit into. My role is heading up the North American investment platform within the renewable power infrastructure group––serving the sector there. We are focused on equity investments in renewable projects, primarily in Canada and the U.S., but we do have the ability to look at other jurisdictions and we continue to evaluate investment opportunities in those core markets as well as other places including Asia, South America and Mexico.

PFR: You’ve been with BlackRock since 2011. How has your role in the company evolved since then until now?

Giordano: Our team is the first renewable power infrastructure equity investment platform within the firm. Initially, it was really about setting up and launching this first product, and both developing the strategy and systems in place to facilitate those investments. As we’ve grown and evolved, my primary role continues to be heading up the investment activities of the investment team here, based out of New York. But we’re also thinking more strategically about a broader geographical focus in the renewable energy industry and looking at other equity infrastructure investments and places where we might see opportunities or potential strategies for how to grow into some of these opportunities. Finally, as we’ve invested the capital, the role evolves from less about capital deployment and more into managing those investments and the commercial aspects around those assets, and thinking strategically about the portfolio as a whole.

PFR: Could you elaborate on the strategic evaluations that BlackRock is making in terms of geographical expansion as well as harnessing avenues in the renewables space?

Giordano: We’re continuing to pay attention to how the market is moving and evolving both in our core markets and also in other attractive markets with a particular focus on OECD member countries. We are also focusing on places where our sponsor partners are very active in developing new projects and avenues where we think we could play a role as a capital partner to those sponsors. With that, we have done a fairly significant analysis around opportunities in Japan. With what’s happening there, we think that’s an exciting market. While we have not made an investment off the equity platform, it is a region that we remain very interested in. While not a renewable investment, we had the announcement about the Los Ramones pipeline project in Mexico. That is also a market where we think a lot of exciting things are going to happen. So, it’s a place where we continue to look at real opportunities but also try to learn and pay attention to the broader market dynamics and work with primarily our sponsor partners to see whether there is an opportunity for us to invest. We’re also looking at places in South America along the same themes. There are some very attractive markets there. In particular, Columbia and Chile are places we are paying attention to very closely. We’re also looking at places where our sponsor partners are active.

PFR: How do you current renewables financing trends in the U.S. compare with those in Latin America?

Giordano: The U.S. is a very mature market that continues to evolve as the market itself has grown not only in terms of scale but also in terms of investors, capital providers and debt providers – all along the capital stack. In Latin America, there have been fewer opportunities to invest. So, you don’t necessarily see this same depth of capital looking to be deployed in those markets. You also have, in Latin America, financing – either direct government involvement or export credit agencies, institutions like the BNDEs (Banco Nacional de Desenvolvimento Econômico e Social) in Brazil, and the ECA financing in Chile. I think that reflects some of the inherent sovereign and/or currency risk associated with those markets. As they mature further, you’ll see less involvement of government and quasi-government agencies.

PFR: What types of trends are you seeing in M&A transactions for renewables in the U.S.?

Giordano: Generally in the U.S., I think we are seeing an increasing number of players interested in deploying capital in the space – everything from yieldcos to institutional investors to broad infrastructure funds and broad energy funds, and then in some cases, folks like us who have a particular mandate focused on renewables.

PFR: How is the project finance landscape evolving for greenfield renewable projects?

Giordano: As the asset class has matured, you see more investors getting comfortable with greenfield projects or new projects. I think it’s becoming more competitive, but I would also say that, generally, you have a conservatism that is applied to greenfield projects in particular, where you don’t have operating history. It has stayed fairly consistent. I think there are more things that are known because we have more experience with the asset class. So, there is less sensitivity to big shifts in the assumptions going in, but I’d say the same fundamentals of investments have stayed pretty consistent.

PFR: BlackRock has increasingly been participating in M&A deals across the America in the recent past, including the stake purchase in RPM Access, and the Los Ramones pipeline in Mexico. How does buying equity stakes in projects, as opposed to 100% acquisitions, fall in line with BlackRock’s core focus investment strategy?

Giordano: I think it’s very consistent. To be specific on the Los Ramones opportunity that was announced, we are partnered there with First Reserve. So, we don’t own a 100% undivided stake there in the equity. From our perspective, we are looking for fundamentally sound, true core infrastructure investment opportunities on behalf of our clients. And when we find those opportunities, we are not constrained by either being a majority or a 100% owner all the way down to being a minority owner. We can be comfortable with everything along that spectrum of ownership percentages. The key for us is just being sure that we have the right governance in place in situations where we have partners––particularly where we’re a minority partner. We will be interested in fundamentally sound assets that deliver long-term uncorrelated cash-on-cash yield.

PFR: I understand that a BlackRock-managed fund has partnered with EDF Renewable Energy on the 200 MW Longhorn and the 194 MW Spinning Spur 3 Wind facilities, once they are completed by year-end. Is BlackRock looking at a long-standing partnership with EDF at the moment? What do you hope to achieve from this partnership?

Giordano: The first part of the answer is that we have had a partnership with EDF Renewable Energy. We were also investors in the Spearville 3 project in Kansas in December 2012. We are a 40% owner in that asset, partnered with two other parties, Eurus owns 40% and EDF owns 20% of that asset. We really saw this portfolio as an extension of that existing partnership. We are very attracted to strong sponsors, which EDF clearly is. They also have a very deep history in operating renewable power assets in North America. So, they are an excellent partner for us, bringing that operating expertise to the assets. I think the attraction from their side is having a capital partner that allows them to leverage their own internal capital into a broader set of assets, year over year, as they continue to have success on the development side. I think it is a really good example of the broad range of partnerships that we can have, and the broad range of sponsors where our type of equity capital involvement makes sense for them – everything from RPMA, where we’re buying 90% of the asset there to an EDF, where we’re a 50% owner.

Because EDF has such a deep pipeline of assets under construction and development, it allows us to deploy capital efficiently on consistent terms and conditions with a sponsor that we have an existing long-standing relationship with.

PFR: What sorts of projects is BlackRock looking to acquire going forward? What qualities are you looking for in those assets?

Giordano: We’ll continue to be a very active player in equity investments in renewable energy projects, particularly onshore wind and solar PV projects. But we’re primarily focused on fundamentally sound projects where we can make equity investments. It’s an opportunity to deliver uncorrelated yield to our partners and investors in the assets, and have projects that offer particular strategic advantages and meet the true definition of core infrastructure projects with consistent revenue propositions and proven technologies in stable markets.

PFR: What is your view on offshore wind?

Giordano: It is a part of the market we continue to pay attention to, although we have not deployed any capital, to date, into offshore wind. We do believe that that is a technology that continues to mature. For the right assets, we are certainly interested. I’d say in North America, it’s probably less of a focus than it is for our European counterparts on the team, but it is absolutely an area we are paying attention to. From a core focus perspective, we are much more focused on onshore wind.

PFR: What is your take on how the yieldco space is evolving? Do you think the yieldco model is sustainable? Also, do you see more yieldco IPOs coming to market in the year ahead?

Giordano: If I take the broadest possible view from the industry’s perspective, yieldcos are a very positive development and I think it’s just a great illustration of how far the industry has come for investors––all the way down to retail investors in the public markets.

You see a high demand for these investments, a lot of comfort around the fundamental technologies and also a continued general consensus that the growth that is expected in these yieldcos is supportable and continues to be a story retail investors are comfortable with. Hence, the enthusiastic response to the yieldcos that have come to market for the most part, save for a couple. We are private investors in equity. So, I do think there are some differences about yieldcos. In our approach, we’ve taken a different track. I think one of the things that’s attractive about the asset class is an uncorrelated yield to public markets. I think when investors look for alternative investments, that’s part of what’s attractive about them. While the yieldco offers great liquidity and exposure to this asset class, which are all very positive, I think you do have some risk of correlation to the broader public market trends. Whereas investing directly at the project level, not through a public vehicle, insulates you from that. Going forward though, it’s been an enthusiastic space and for the right sponsor companies that have the right management teams and have demonstrated the ability to continue to grow year-over-year and have depth in terms of a pipeline of projects that can be moved into their yieldco, I think we’ll continue to see successful yieldcos coming to market. At least from what you hear at the conferences, and in talking to some of the other development companies, I think we can absolutely expect to see new yieldcos coming to market.

PFR: Do you see yieldcos coming to be a source of capital for developers like Atlantic Power, for example, which sold more than 500 MW of contracted wind assets to TerraForm Power last month. Is that a trend that you think will catch up among developers that are selling assets to yieldcos?

Giordano: Yes, absolutely. I think the challenge that many yieldcos have is that they can only invest in projects post-commercial operations date. So, for many developers, the capital pinch actually happens earlier in the cycle––either at the start of construction or even slightly pre-construction. So, that will be a challenge. But for those sponsors that can finance through construction, yieldcos will be a source of capital and are adding a lot of competitive pressure to returns for operating assets.

PFR: What are your key focus areas in terms of BlackRock’s renewables investment portfolio over the next couple of years?

Giordano: I think we will continue to build off of the success of our renewable power investments in Europe, the U.S. and Canada. We will continue to look at these markets where you are seeing continued growth and where you’ve got attractive fundamental economics as well as fundamental sovereign stability.

PFR: What roles is BlackRock looking to take in transactions going forward?

Giordano: I think we are very flexible in terms of the roles that we will take on in the transaction, but I think what we are really focused on are strategically advantaged, fundamentally sound project investment opportunities. If you look across our infrastructure platform here, BlackRock continues to grow. We have a debt team that is separate from the equity team. We also have some other opportunistic funds that will all continue to look for opportunities to make attractive investments.

PFR: What other areas to watch out for in terms of growth?

Giordano: With the expiring policy of production tax credit and investment tax credits in 2016, I think you’ll see a lot of activity in the U.S. for new projects as sponsors continue to push to get their projects completed within the current deadline of the federal policy in the U.S. I think you will continue to see the maturation of capital providers coming into the market. It will be highly competitive for project-level equity. Depending on some trends in the broader energy market, and given the continued decline in the cost per megawatt hour for new projects as technology advances and evolves, I think we’ll see places where renewable power plays a key role in the overall generation mix.

PFR: Do you plan to make additions to your team in the year ahead? If so, what types of roles do you see opening up in your group?

Giordano: This is a strategic priority for the firm, and we continue to see areas for growth. We’ll look to build a team that brings real experience in the spaces in which we are investing. I think that’s a key advantage, especially on our renewable power team – having folks who come from the industry and understand the industry. That is such an important part of infrastructure, investing broadly. Strategically, that will continue to be a focus for us. As we grow the platform we’ll fill out the executives and professionals on the team that are consistent with the strategy.

 

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