What EFG Hermes’ Vortex Energy has in its renewable energy investment pipeline: Adecade ago, EFG Hermes set up its flagship renewable energy platform, Vortex Energy. In the years since, the platform has launched four funds, the first three of which have deployed some EUR 1.6 bn.

We sat down with Co-CEO of EFG Hermes, an EFG Holding Company, and CEO of Vortex Energy Karim Moussa to discuss EFG Hermes’ plans for Vortex Energy, and what’s next in its investment strategy.

REFRESHER- EFG Hermes set up Vortex Energy in 2014. “It’s the only practice within EFG Hermes’ private equity division that doesn’t invest in the region — only outside the region, with a focus on Europe,” Moussa said. EFG Hermes began setting up its renewable energy infrastructure platform in the immediate wake of the Arab Spring, and most countries that were “relevant” to the renewable energy industry were in North Africa and the Levant, which were “deeply held back by the Arab Spring at that time,” Moussa said.

Why Vortex Energy invests where it does: The firm’s management team chose to focus on the asset class, rather than a specific geographic location, Moussa said. “Wind is the same wind, and the sun is the same sun with no specific nationality, and the turbine is the same, whether I install it in Egypt, in Dubai, or in Germany. Once you understand the asset class, you can go everywhere — it’s just the regulatory environment, the offtake agreements, and other such details that change from one country to another.” EFG Hermes pitched the fund to Abu Dhabi sovereign entities to invest in European solar and wind assets.

To date, Vortex Energy has deployed EUR 1.6 bn in equity and debt over a series of funds— Vortex I, Vortex II, Vortex III — including EUR 875 mn in equity, Moussa said. After delivering solid returns to its investors, EFG Hermes now has the Vortex IV fund, on which it reached second close last December. The fund is anchored by EFG Hermes, Abu Dhabi sovereign institutional investors and family offices, and Asian family offices. EFG Hermes “intentionally domiciled Vortex IV in the Abu Dhabi Global Market to recognize the big supporter we had in Abu Dhabi,” Moussa explained.

Today, the renewable energy platform manages USD 400 mn with its co-investment pocket. “It has Spanish renewables developer Ignis Energia, and UK charging solutions provider EO Charging, which was recently awarded a tender for a project for the London bus operator,” Moussa said. EO Charging is a “leader in providing charging solutions for major fleet heavy clients such as Amazon across the UK and Europe and is also active now in the US,” Moussa said, noting that EV charging infrastructure in the US is “severely lacking” in comparison to Europe and there’s a lot of lessons learned from the European players that EO can apply as it moves forward.

What’s next for Vortex Energy: Vortex Energy’s strategy has four pillars — renewable energy generation, battery storage at utility scale, EV charging, and hydrogen and green ammonia. These pillars are essentially divided into one pillar being upstream — renewable energy generation — one in storage, and one in charging, which is consumption and downstream, as well as the fourth pillar in hydrogen and green ammonia. “We currently have one investment in the upstream pillar with Ignis Energia, and we have an investment — EO Charging — in the downstream pillar. We don’t yet have an investment in battery storage and that’s where we’re investing next.” EFG Hermes is currently in the bidding process for a battery storage investment, Moussa said, but declined to provide further details before the transaction goes through.

The structure of the investments: Ignis has invested EUR 300 mn, including EUR 140 mn from the fund and EUR 160 mn from a co-investment pocket. Its style is large transactions and always creating a co-investment pocket for investors to come in. “We feel that this model is very appealing to investors because a lot of investors just don’t want to have full fund exposure, and they also want to have a direct stake. A lot of transactions that we have in the pipeline are large transactions, but we’ll offer the chance to co-invest as well.” We see lots of the sovereign funds’ appetite increasingly more in direct investments, while some investors in the fund will top-up through the co-investment pocket, Moussa said.

But the market dynamics in renewable energy have shifted in the past several years: “Theera of renewables has changed dramatically — when we started out with Vortex Energy, everyone was investing in feed-in tariffs, long-term offtakes guaranteed by the government, and similar frameworks. That was the case both in the region and elsewhere,” Moussa said. In the last decade, the cost of renewable energy went down by 90% as the market matured and allowed it to “stand on its own feet” to be competitive with other traditional sources of energy such as natural gas and coal, Moussa said.

The industry is widening further, and more changes are taking hold: When this shift began taking shape four or five years ago, Moussa said, players in the industry began shifting to mainly corporate power purchasing agreements. “Further, the industry saw tremendous changes when interest rates shot up and prices fluctuated with the war in Ukraine, and the impact of technical issues in the offshore market that affected the sector quite a bit,” Moussa added. The industry has widened now beyond the initial starting point of wind and solar energy and has extended to a wider range, which includes storage, energy management, energy efficiency, green hydrogen and ammonia.

Green hydrogen is growing quickly — but it’s not quite the time for private equity to get a slice: The emergence of these energy sources is “super exciting, albeit not investable for us as a private equity player at this point in time,” as the nascent technology still needs government subsidies and grants — akin to the starting point for wind and solar energy, Moussa said. “Private equity usually comes in at a later stage once the market has matured a bit. That process could be very fast — things moved quite fast with renewable energy — and that’s why we still have green hydrogen and ammonia as a bucket or pillar we intend to invest in, but we haven’t found the right entry point from a PE perspective. It is more likely that we will get first exposure to the sector with our portfolio company Ignis Energia as a starting point soon.”