Octopus Renewable Energy Opportunities - (OREO) H2 2021 - Iress
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Octopus Renewable Energy Opportunities (OREO) H2 2021
Octopus Australia – Bringing investors and communities closer to the renewable energy assets which will power Australia’s green energy future
Contents 1 Executive Summary 8 2 Key Terms 14 3 Market Opportunity and Pipeline 16 4 Octopus Group and the Manager 29 5 The Trustee 40 6 Octopus Renewables’ track record 42 7 Octopus Investment and Asset Management Strategy 46 8 Risk Factors and Conflicts of Interest 55 Appendices: A Key assumptions 71 B Key Terms 72 C Restrictions and Overseas Investors 81 D Tax considerations 82 E Definitions and Glossary 85
This Memorandum is not an offer to subscribe for that are proposed to exist at the time that the Fund
Units or an invitation to participate in the Octopus and OAMT are established and offers to subscribe for
Renewable Energy Opportunities Fund (the ”Fund” or interests in the Fund are made. The Fund and OAMT
”OREO”). This Memorandum is given to you on that the have not yet been established as at the date of this
basis that you are, and you represent and warrant that Memorandum, and each of the Fund and OAMT will
you are, a ‘wholesale’ client as defined in section 761G be established prior to First Close. This Memorandum
of the Corporations Act 2001 (Cth) (”Corporations may therefore be updated or supplemented at any
Act”). If you are not such an investor, please do not time, but the distribution of this Memorandum does
consider the contents of this Memorandum and return not constitute a representation that the information
it immediately. This Memorandum is given to you for will be updated at any time after the date of this
information purposes only and neither the Memorandum Memorandum. In addition, this Memorandum
nor anything contained in it shall form the basis of may contain statements which are either missing
any contract or commitment and no reliance should information or which assume completion of matters
be placed upon the contents of this Memorandum expected to be completed by the date that the Fund
by any person who may subsequently decide to apply and OAMT (as applicable) are established. All future
for units in the Fund following circulation of the legal dates are indicative only and subject to change.
documents constituting the Fund. Without limiting the Each recipient of this Memorandum should make
generality of the foregoing, this Memorandum does its own independent assessment of the information
not constitute, and may not be used for the purposes contained in this Memorandum and take its own
of, an offer to subscribe for Units or an invitation to independent professional advice in relation to the
apply to participate in the Fund by any person in any information and any action taken on the basis of the
jurisdiction. No agreement to subscribe for the Units in information. The provision of this Memorandum is not
the Fund will be entered into between Equity Trustees and should not be considered as financial product
Limited (ACN 004 031 298, AFSL No. 240975), the advice. Nothing in this Memorandum constitutes
trustee of the Fund, and any person on the basis of investment, legal, tax or other advice. The information
this Memorandum. in this Memorandum is general only and does not
This Memorandum is highly confidential and has been take into account your individual objectives, taxation
given to you solely for your information and may not position, financial situation or needs.
be reproduced or redistributed to any other person. It By accepting this Memorandum, you acknowledge
should also be noted that this Memorandum has been and agree that you understand the contents of this
prepared to reflect the state of affairs relating to the notice and that you agree to abide by the terms and
Trust and the Octopus Australia Master Trust (”OAMT”) conditions of this notice.
Important Information and
Disclaimer for all Investors
This Information Memorandum (the ”Memorandum”) The Manager has prepared and is the issuer of this
dated 5 November 2021 is issued by Octopus Memorandum. The trustee of the Fund is Equity
Investments Aust Pty Ltd ACN 626 662 039, Australian Trustees Limited (ACN 004 031 298) (the ”Trustee”)
Financial Services Licence No: 520121. It is proposed (AFSL No. 240975). Equity Trustees has not prepared
that Unitholders in the Fund (”Unitholders”) will this Memorandum other than section 5 (The Trustee)
own units in the Fund on the terms described in this and to the maximum extent permitted by law, disclaims
Memorandum. liability to any person for reliance on this Memorandum.
4 Confidential Information Memorandum
Statements in this Memorandum are made only as to any liability for, or remedy in respect of, fraudulent
of the date of this Memorandum, unless otherwise misrepresentation, no responsibility or liability or duty
stated. The Manager and Trustee are not responsible of care is, or will be, accepted by the Manager, the
for providing updated information to any prospective Trustee or any of their respective associates, advisers,
investors of the Fund (”Prospective Investors”). directors, officers, employees or agents as to the
fairness, accuracy, completeness, currency, reliability
This Memorandum is circulated to a limited number
or reasonableness of the information or opinions
of Prospective Investors on a confidential basis by
contained in this Memorandum or any other written
the Manager. Prospective Investors must be, and
or oral information made available to any Prospective
investments in the Fund can only be made by,
Investor or its advisers in connection with any proposed
‘wholesale’ clients as defined in section 761G of the
subscription or otherwise in connection with this
Corporations Act 2001 (Cth) (”Corporations Act”)
Memorandum. In particular, but without prejudice
and each recipient of this Memorandum represents
to the generality of the foregoing, no representation
and warrants that it is, and at all times will be, a
or warranty is given as to the achievement or
‘wholesale’ client for the purposes of the Corporations
reasonableness of any future projections, forecasts,
Act. As such, any offer or issue made under or in
targeted returns or illustrative returns (”Forward-
connection with this Memorandum does not require
Looking Information”).
a product disclosure statement or other disclosure
document as defined under the Corporations Act. Past performance information contained in this
No action has been taken to permit a public offering Memorandum, or in such other written or oral
of the units in the Fund (”Units”) in any jurisdiction material, is not an indication of future performance.
where action for that purpose would be required. This Such information has not been audited or verified
Memorandum does not constitute an offer to sell or a by an independent party and should not be seen as
solicitation of an offer to buy Units in any jurisdiction any indication of returns, which might be received by
outside Australia unless expressly authorised by the Investors in the Fund. Similarly, where Forward-Looking
Trustee and permitted by law in such jurisdiction to Information is, or related statements or expressions
make such offer or solicitation. of opinion are given, it or they should not be regarded
by any recipient of this Memorandum as a guarantee,
Nothing in this Memorandum takes into account
prediction or definitive statement of fact or probability.
the investment objectives, financial situation or
Actual events and circumstances are difficult or
particular needs of any Prospective Investors, and
impossible to predict and will differ from assumptions.
does not purport to contain all the information that
A number of factors, in addition to the risk factors
a Prospective Investor may require in evaluating a
stated in this Memorandum, could cause actual
possible investment in the Fund, nor does it contain all
results to differ materially from those in any Forward-
the information which would be required in a product
Looking Information. There can be no assurance that
disclosure statement prepared in accordance with the
the Fund’s investment strategy or objectives will be
requirements of the Corporations Act. Prospective
achieved or that Unitholders will receive a return on the
Investors should carry out their own due diligence
amount invested.
on the Fund and of the information contained in or
referred to in this Memorandum and should form their In making an investment decision, Prospective Investors
own assessment and take independent professional must rely on their own examination of the Fund, the
advice on the merits and risks of an investment in the Manager, the Trustee and any other information they
Fund and the legal, regulatory, tax and investment consider relevant.
consequences and risks of doing so. Prospective
To the fullest extent possible, by accepting delivery
Investors should also carefully review the information
of this Memorandum, each Prospective Investor
and warnings set out in Section 8: ”Risk Factors and
releases, the Manager, the Trustee and each of their
Conflicts of Interest” of this Memorandum.
respective associates, advisers, directors, officers,
No representation or warranty, express or implied, employees and agents in all circumstances (other
is, or will be, given by the Manager, the Trustee or than fraud) from any liability whatsoever and
any of their respective associates, advisers, directors, howsoever arising from its use of this Memorandum
officers, employees or agents and, without prejudice or any information or communications in connection
Octopus Renewable Energy Opportunities (OREO) 5
with this Memorandum, or due to information being any transaction that may be described herein, other
omitted from the Memorandum, whether by way of than by providing this Memorandum or such further
negligence or otherwise. In addition, no responsibility information as may be furnished by the Manager,
or liability or duty of care is, or will be, accepted by all of which will be subject to the same terms as this
the Manager, the Trustee or any of their respective Memorandum and, if given or made, such information
associates, advisers, directors, officers, employees or or representation must not be relied upon as having
agents for the accuracy, reliability or completeness been so authorised.
of the information contained in this Memorandum,
No reliance should be placed upon the contents of this
updating this Memorandum (or any additional
Memorandum by any person who may subsequently
information), correcting any inaccuracies in it or
decide to apply for Units following circulation of
providing any additional information to any Prospective
the Fund Documents. This Memorandum does not
Investor. Nothing contained in this Memorandum (nor
constitute, and may not be used for the purposes of, an
any other information made available to Prospective
offer to subscribe for Units or an invitation to apply to
Investors in the further due diligence materials
participate in the Fund by any person in any jurisdiction
provided) is, or shall be relied upon as a promise,
in which such offer or invitation is not authorised or in
representation, warranty or guarantee, whether as to
which the person endeavouring to make such offer or
the past, present or future. Accordingly, to the extent
invitation is not qualified to do so or to any person to
permitted by law, neither the Manager, the Trustee
whom it is unlawful to make such offer or invitation.
nor any of their respective associates, advisers,
directors, officers, employees or agents shall be liable Prospective Investors should not construe the contents
for any loss (whether direct, indirect or consequential) of this Memorandum as legal, tax, financial, investment,
or damage suffered by any person as a result of accounting or other advice or as a recommendation
relying on any statement in, or omission from, this by the Manager that any Prospective Investor should
Memorandum or in, or omitted from, any other acquire any Units.
information or communications in connection with Each recipient of this Memorandum may ask questions
any proposed subscription of Units. of representatives of the Manager concerning the terms
The Manager will be appointed as investment manager and conditions of participation in the Fund and to obtain
of the Fund prior to First Close of the Fund. Prospective any additional information in connection with the
Investors should review the trust deed, the investment contents of this Memorandum. The Manager may,
management agreement and subscription agreement at its discretion, make further information available
(”Fund Documents”) for further information regarding to Prospective Investors in response to such questions,
the rights and obligations of Unitholders in the or of its own volition, and any further information will
Fund and of the Trustee and the Manager. Where a be subject to the same terms as this Memorandum.
statement in this Memorandum expresses or implies All financial and other data in this Memorandum
that a state of affairs exists as at the date of this is as at [31 August 2020] unless otherwise stated.
Memorandum, that statement must be read and Note the following FX rates were used as of this date:
interpreted to the effect that the state of affairs will GBP:AUD 1.8112.
exist by no later than the date of issue of Units. This
The recipients of this Memorandum may request
Memorandum is proprietary to the Manager, a trade
clarification and further documentation by contacting:
secret and furnished to recipients on a confidential
basis. By accepting delivery of this Memorandum, Sophie Gibbons
the recipient agrees not to reproduce or distribute Head of Wholesale
this Memorandum, in whole or in part, by electronic Octopus Investments Aust Pty Ltd
or any other means, and not to disclose any of its
sophie.gibbons@octopusinvestments.com
contents (other than to obtain advice on it from a
legal, business, investment or tax adviser). If any of the Como Centre, 644 Chapel St, South Yarra,
restrictions, set out above or below are unacceptable, Melbourne, Victoria, 3141
this Memorandum should be returned immediately.
The Manager has not authorised any person to give
any information or make any representation concerning
6 Confidential Information Memorandum
Octopus and OREO at a glance
Octopus Group in Australia: Fund and Investment Strategy:
• Experienced renewable energy Investment • The Manager will seek to provide liquidity
Manager with over 270 energy sites under quarterly.
management, representing $7 billion of • Target net IRR 7.0% (post fees, pre-tax,
value and c2.5GW of capacity. including yield).
• Supported by a 80 strong team of dedicated • Target 4-5% per annum net yield to be
renewable energy professionals. distributed bi-annually to Unitholders.
• Experienced team of more than twenty on • Investing in Australia’s transition towards
the ground, based in Melbourne and Sydney, a renewable energy future.
building the investment pipeline, performing • Investment indirectly in the Octopus Australia
due diligence and executing transactions. master trust (”OAMT”), which will hold a
• Octopus Group has raised in excess of $1 billion portfolio of investments on construction
from wholesale and institutional investors ready and operational utility scale renewable
over the past 18 months, into renewable energy sites.
energy assets. • Revenue for the portfolio will be generated
by OAMT through a mixture of the sale of
energy via fixed term and fixed price contracts
(”Power Purchase Agreements” or ”PPAs”)
Renewable Energy Market Opportunity and wholesale energy trading.
in Australia • Attractive proposed cornerstone asset for
• $170 billion of renewable investment over next OAMT, being a majority interest in Darlington
30 years. Point Solar Farm (333MWp), one of Australia’s
• Contraction of electricity supply as coal plants largest utility scale solar plants.
retire and the grid adopts a diverse energy mix. • Integrating and bringing all stakeholders
• Electricity demand driven by one of the (communities and investors) closer to the
fastest-growing populations in the developed Octopus Australia managed assets in which
world, record heatwaves and calls for cleaner they have a vested interest.
energy from consumers and investors.
Octopus Renewable Energy Opportunities (OREO) 7
1. Executive Summary
1.1 Octopus Introduction
Octopus is one of the largest specialist renewable energy investment
managers in the world, and with an experienced team based in Australia.
Founded on an obsession with always delivering above
expectations for customers, Octopus Group is building
companies and investments that people love and
which make a difference. Our core strategy is to focus
on markets that are outdated and in need of change,
where there is lack of supply, a shift in demand, or a
change in attitudes, which provides an opportunity
to shape better outcomes for customers and their
communities. Today, Octopus Group1 is a multi-
strategy independent investment manager, with over
800 employees in London, New York, Melbourne and
Sydney, and approximately $16 billion of funds under
management.2 Octopus Group works with in excess of
5,000 financial advisers, utilising our investment teams
experience to offer clients a combination of traditional
and tax-efficient investment solutions.
Since 2018, Octopus Australia has been using its
experience from other countries to help shape
Australia’s energy transition away from fossil fuels,
to provide a cleaner and more sustainable future.
1
”Octopus Group” refers to Octopus Capital Limited, a UK
private company and its majority owned subsidiaries.
2
Octopus Investments, January, 2020.
Octopus Group headquarters, London UK.
8 Confidential Information Memorandum
Global Energy Experience
The Octopus Renewables (”OR”) team of the Octopus capital from investors deployed into renewable energy
Group is a global specialist energy investment team assets. In addition, the team managed market leading
that was established in 2010 with a primary focus on project refinancings across all of its major technology
the sourcing, financing, construction and operation of portfolios including Solar PV (c$1.1bn), Wind ($594m)
renewable energy assets, especially utility scale solar and biomass ($274m). To support its growing activities
photovoltaic (”Solar PV”) and onshore wind (”Wind”) and portfolio, OR employs over 80 professionals with
plants. OR has grown significantly since inception and wide-ranging experience and strong track records
is now one of the largest renewable energy investment in investment sourcing, deal execution and asset
management teams globally. The team led investment management. By drawing on this experience and
into the largest portfolio of European Solar PV (1.3GW) leveraging its wider relationships, OR believes it is well
and manages in total a portfolio c2.5GW of installed placed to identify and execute attractive investment
capacity across over 270 energy sites worth $7 billion. opportunities, and develop and implement value
OR’s managed funds are split across retail, wholesale enhancement strategies, thereby delivering attractive
and institutional investors, with over $1 billion of raised returns to investors.
Figure 1: OR European Energy Portfolio
Number 1
in European
Solar market
Octopus Group
managed sites
Octopus in Australia
In Australia, Octopus Group’s fund management for OR in London and oversaw the expansion of the
is carried out through Octopus Investments Aust OR portfolio to $4.6 billion. Sam is supported on the
Pty Ltd or associated entity (the ”Manager”) and ground by senior energy professionals who successfully
its Melbourne and Sydney based team (”Octopus delivered similar investment strategies outlined in this
Investments Australia or OIA”). OIA is led by document (see Sections 1.3 and 6.3).
Managing Director, Sam Reynolds. Sam, originally from
In total, OIA comprises twenty individuals with a
Australia, was previously Head of Energy Investments
range of experiences as asset operators, engineers,
Octopus Renewable Energy Opportunities (OREO) 9
investment professionals and lawyers, working within In December 2018, OIA, in agreement with the OIAIC,
the Octopus Group, OR and other energy businesses reached financial close on Darlington Point, its first
across Europe and Australia. Details of the team are Australian asset. At 333MW, Darlington Point is one
listed in Section 4. of the largest Solar PV sites in Australia. More detail is
provided in section 6.4. Darlington Point has now been
An Octopus Investments Australia Investment
fully constructed and is operational, providing enough
Committee (”OIAIC”) is responsible for making the
energy to power more than 115,000 Australian homes.
final decisions on new investment opportunities and
allocations presented to it by OIA’s investment team. Since then, OIA has utilised its experience to further
The overriding role of the OIAIC is to ensure that all build its team and pipeline. In 2020, OIA entered a JV
proposals that are approved are in the best interests with the Federal Government backed Clean Energy
of the Unitholders, are within the Fund’s strategy and Finance Corp (CEFC) to develop 2 solar and energy
that all statutory, regulatory, fiduciary and contractual storage sites in Victoria. In 2021, OIA reached financial
obligations and OIAIC procedures are adhered to close on the Dulacca wind farm. Once constructed
throughout the investment. Further detail on the OIAIC the wind project, 350km north-west of Brisbane within
can be found in Section 4.5. the Western Downs Region, will consist of 43 wind
turbines and generate enough electricity to power
approximately 124,000 homes.
Figure 2: Octopus Team and Corporate Structure Overview
Team Structure Corporate Structure (‘Octopus Group’)
Octopus Capital Limited
Octopus Renewables (‘OR’) FCA Regulated
(80+ Energy Professionals in London)
Octopus Investments Limited Other Subsidiaries
UK
Australia
Octopus Capital Aust Pty Ltd (OCA)
Octopus Investments
Australia Octopus Investments Aust Octopus Service Contract and
(More than 25 professionals Pty Ltd (and related entities) Revenue Management Pty Ltd
in Melbourne & Sydney) (‘Manager’) (‘OSCAR’)
1.2. Market Opportunity
Australia, known for its reliance OIA has been committed to the Australian renewable
on coal, is ripe for a transition energy market for the last 3 years and believes the
current environment provides a ripe opportunity for
towards renewable energy. Prospective Investors to be a catalyst for Australia’s
transition to renewable energy. During Octopus Group’s
time in Australia, the OIA team have 3 solar projects in
Despite a large reliance on coal, Australia is poised
construction, with two of the sites complemented with
to follow examples set by the UK and Europe in a
lithium ion batteries.
transition to renewable energy, as the cost of such
technologies continues to fall. Over the next 30 years, OIA see the below drivers underpinning this transition
c$170 billion is forecast to be invested into Australia’s and driving investment into the sector (discussed
renewable energy infrastructure. further in Section 3.2):
10 Confidential Information MemorandumFigure 3: Forecast Australian Coal Plant retirement3
25
20
Generation capacity (GW)
Coal Fleet Retiring
15
10
5 85% reduction in
coal fleet
0
2040
2046
2049
2044
2048
2030
2050
2036
2039
2034
2038
2043
2045
2020
2026
2029
2033
2035
2024
2028
2042
2047
2023
2032
2037
2025
2022
2027
2019
2041
2031
2021
Remaining coal generation Coal plant being retired
Energy Supply Constraints one of the fastest-growing countries in the developed
• Coal plant retirements: Today, 80% of Australia’s world (40 million by 20506).
electricity is generated from an increasingly ageing • Shift in attitudes: Popular attitudes toward
fleet of coal and gas plants. Over the next 30 years, energy consumption and investment are changing.
85% of coal capacity is forecast to retire with little Large corporates, governments and other large
to no planned reinvestment or new construction of energy users are increasingly committing to
coal plants. sustainable consumption including the procurement
• Electricity Transmission and Distribution Grid: of renewable energy. Additionally, as younger
The replacement of coal-fired baseload energy with generations begin to command greater wealth and
a new generation mix containing renewables will influence, sustainability will increasingly become a
most likely not be orderly, as Australia’s energy core factor in making investment decisions.
grid was not designed to accept energy sources
Defensibility characteristics
embedded throughout the grid that generate
intermittently. OIA believes a delayed modernising Renewable energy assets also exhibit a large number
of the grid will benefit those assets able to secure of defensive characteristics making them beneficial
an early grid connection, while keeping upward to a portfolio. These include:
pressures on energy prices. • The fuel source (i.e., the sun or wind) is free, and has little
correlation to market sentiment. There is also decades
Energy – Demand Drivers
of weather dating meaning the generation capability
• Climate Change and Population trends: The impact can be predicted with good statistical confidence;
of climate change on weather patterns is becoming
• A portion of revenues is typically fixed via a fixed
more pronounced, with December 2019 being the
price Power Purchase Agreement (PPA) as well as
warmest such month on record for Australia, for all
exposure to the strong underlying energy market
states and Territories except Tasmania. Maximum and
fundamentals (discussed in Section 3.2).
minimum temperatures were above average for nearly
all of mainland Australia. Rainfall was the lowest on • Low level of day to day requirements for ongoing
record. With record warmth, accompanied by record maintenance, which typically leads to low ongoing
low rainfall over Eastern Australia bush fires ensued operational and capital expenditure; and
in early 2020, highlighting the impact of climate • A robust capital structure: Debt is normally structured
change.4 Compounding these issues is Australia’s around the fixed cash flows. As such, the solvency
population, which increased by 16.9% over the last of the asset may be preserved in times of economic
decade to 25.5 million people5 and is forecast to be shocks or volatility.
3
AEMO observations: Operational and market challenges to reliability and security in the NEM, 2018. 4 Australian Government, Bureau
of Meteorology December 2019. 5 Australian Bureau of Statistics, September 2019. 6 Population Australia, 2020.
Octopus Renewable Energy Opportunities (OREO) 111.3. OR Track Record7
OREO represents the Australian rollout of a strategy successfully
deployed by OR in the UK8
Octopus Group have a proven track record of helping to Members of the OR team relocated to Melbourne and
accelerate the development of local renewable energy Sydney. These members were part of the team that
markets by providing flexible funding opportunities to helped negotiate and invest in the portfolios listed
attract investment, which supports the development on Table 1, and who now form the senior team of
and construction of renewable energy assets. OIA will OIA supported by local recruitment adding domestic
deploy a similar strategy. knowledge.
Table 1: Renewable Energy Track Record
Strategy #Assets Geography Investment Period Equity Invested ($m) Gross IRR
Solar: Construct and realise 131 UK 2011 - 2018 794.4 10.6%
Operational solar
158 UK & FR 2014 - today 1,428.0 6.0%
(Greenfield + Brownfield)
Operational wind
15 UK 2015 - today 696.4 8.2%
(Greenfield + Brownfield)
Operational Biomass 29 UK 2015 - today 289.2 9.2%
In construction
Australian Solar 1 AUS 2018 - today 264.2 8.8%
Finnish Wind 1 FIN 2019 - today 52.2 9.1%
French Wind 2 FR 2019 - today 91.8 8.7%
Swedish Wind 1 SWE 2020 - today 106.9 7.3%
7
The information in Table 1 obtained from the OR’s origination, operations and delivered returns track record has also been included
to demonstrate the capabilities of OIA and the wealth of experience which the team can call upon from OR in London.
8
As above.
12 Confidential Information Memorandum1.4. The Fund and Investment Strategy
Proprietary origination channels and a highly experienced investment team
with opportunities for rapid capital deployment into a strong pipeline.
Octopus Renewable Energy Opportunities (”OREO”, which is an unregistered wholesale Australian Unit
or the ”Fund”) will benefit from the experience of OIA Trust. The Fund will target a net Internal Rate of Return
(supported by the OR team) in order to capitalise (”Net IRR”) of 7.0%, including a yield of approximately
on the Australian market opportunity. The Fund’s 4-5%, (post annual management and performance
primary strategy will be to drive value to Unitholders fees, but before tax). For further details, please see
through its co-investment with Octopus Australia Appendix B.
Sustainable Investments (”OASIS”) in OAMT, which
The target portfolio mix of the Fund (including through
will construct new utility scale renewable energy
its investment in OAMT) will include:
assets that develop strong operational track records,
complemented by existing operational assets providing • Solar PV parks, onshore wind, storage and
robust track records. The Fund may also acquire assets hydrogen opportunities;
where an investment opportunity sourced for OAMT • Leverage across the portfolio to not exceed 65% of
is not acquired by the OAMT, and such investment gross asset value of the Fund; and
opportunity is allocated for consideration and • More than 40% of revenues at any one time will
acquisition by the Fund in accordance with the Octopus be covered by a fixed price contract.
Australia Investment Committee Allocation Policy.
The cornerstone asset for OAMT is a majority interest
The Manager anticipates that OAMT will invest
in Darlington Point Solar Farm (”DPSF”), based in New
in a mixture of ‘shovel ready’ projects, meaning
South Wales. Given its size and location OIA considers
development works are complete (see Section
the site is a perfect cornerstone asset for the OAMT
7.2), all construction and operational contracts are (and, through its investment in OAMT, the Fund). DPSF
finalised, and contractors are ready to commence
is a 333MWp solar farm that covers over 750 hectares
work onsite, alongside operating, energy generating
and enough energy to power 115,000 homes.
assets. The intention is for OREO to be an open-
ended portfolio allowing investment to indirectly, via As the seed asset for OREO, the site will be
OREO's investment in OAMT, finance the construction substantially de-risked with grid connection secured
programme through to steady state operations, and site operational.
alongside assets that are performing at the time of OIA believes it is well placed on the grid with connection
OAMT's acquisition. Value to Unitholders will be driven to TransGrid’s 330KV transmission network on-site and
by the de-risking of sites by OAMT post construction by a connection agreement in place. Furthermore, 55%
normalising operations, selling sites’ energy generation, of its output is contracted for 11 years, providing an
and paying a proportion of OAMT’s returns in the form attractive mix of contracted and merchant revenues.
of distributions.
From a revenue perspective (detailed further in Section
7.9), the investment manager of OAMT (”OAMT
Manager”) will target a proportion of energy to be
sold on a fixed term, for a fixed price. To allow flexibility,
energy will also be traded on the wholesale energy
market to capture any upside movement in energy
prices or fixed for short periods of time based on the
OAMT Manager’s view of the energy market.
Unitholders will acquire and hold legal and/or beneficial
title to Units in the Fund (subject to the terms of the
trust deed described in the Appendix ‘Trust Deed’),
Darlington Point Solar Farm.
Octopus Renewable Energy Opportunities (OREO) 132. Key Terms
The following is a summary of the proposed principal terms of
Octopus Renewable Energy Opportunities Fund (‘OREO’).
2.1 The Fund
The following is a summary of the principal terms of OREO
Fund Name Octopus Renewable Energy Opportunities (”OREO” or ”the Fund”)
Fund Structure The Fund will be an unregistered wholesale Australian unit trust
Investment Focus The Fund will focus on investing indirectly in a portfolio of Australian clean
energy infrastructure assets (including associated businesses) through its
investment in the Octopus Australia Master Trust alongside other Octopus
Group-managed vehicles. The fund may also invest directly or alongside third
parties. For more information, please refer to Investment Strategy
Trustee Equity Trustees Limited (AFSL: 240975) is the Trustee of the Fund
Investment Manager Octopus Investments Aust Pty Ltd, or a related entity of Octopus Investments
Aust Pty Ltd, is the manager of the Fund (”Manager”)
Initial Target Size $100 - 150 million at first close
Minimum Commitment $100,000
Targeted Returns 7.0% net IRR (post fees, pre-tax, including yield)
Targeted Yield 4-5% per annum net yield will be provided to Unitholders in bi-annual
distributions, starting from the first 30 June following the initial issue of Units
(the ”Start Date”)
Liquidity Facility The Manager will seek to provide quarterly liquidity for Unitholders. For more
information about liquidity, please refer to Redemption in Appendix B
Term Open-ended
Note: The summary is qualified in its entirety by reference to the Fund Documents and to the extent of any inconsistency the terms
of the Fund Documents will prevail.
14 Confidential Information Memorandum2.2 Octopus Australia Master Trust (OAMT)
The Fund will predominantly obtain its exposure to (a) approval of a liquidity proposal for the unitholders
a portfolio of Australian clean energy infrastructure of OAMT;
assets (including associated businesses) that are (b) election for some or all of the distributions from
consistent with the Fund's Investment Strategy
the OAMT to be reinvested (subject to approval of
through its co-investment with the OASIS in OAMT.
the trustee and the investment manager of the
The investment manager of OAMT will source
OAMT); and
new investment opportunities for OAMT, and any
investment opportunity sourced for the OAMT that is (c) approval of entry by OAMT into any related party
not acquired may be allocated for consideration and transactions pursuant to which the OAMT Manager
acquisition by the Fund in accordance with the OAIC or any other Octopus entity has a conflict of interest,
Allocation Policy. or that involves a transaction between the OAMT
Manager or any other Octopus entity, except
As a unitholder in OAMT, the Fund will have
in relation to entry into the OAMT investment
representation on the Investor Committee of OAMT
management agreement and any development,
for so long as it holds at least 20% of the total number
property or other asset management agreement
of units on issue in OAMT. The Investor Committee will
with OSCAR.
be responsible for considering certain items reserved
for consideration by the Investor Committee, and the The Manager and the investment managers of OASIS
investment manager of OAMT must seek approval and OAMT have adopted a Conflicts Management
of the Investor Committee prior to taking any action Protocol that identifies and seeks to manage actual,
(other than preparatory steps) in respect of such potential or perceived conflicts of interest which may
reserved items. Representatives of the Fund on the arise as between the Fund, OASIS and OAMT, and
Investor Committee will be one or more Octopus OIA (and its related entities) as appointed investment
Investment Australia representatives (each subject managers of those funds. A summary of the proposed
to appropriate conflicts of interest protocols in their principal terms of OAMT will be provided separately.
role) acting on behalf of the Unitholders. The Fund's The summary is qualified in its entirety by reference to
representatives on the Investor Committee may not the final versions of the relevant fund documents of
approve the following items without having received the OAMT, and to the extent of any inconsistency the terms
approval of Unitholders holding units representing at of the OAMT fund documents will prevail.
least 75% (by value) of the votes that may be exercised:
Octopus Renewable Energy Opportunities (OREO) 153. Market Opportunity and Pipeline
OR believes that Australia is at the precipice of a fundamental shift
in how it produces and consumes energy.
Driven by a constraint of energy supply with the removal and is resulting in new milestones for the industry.
of coal from the grid and robust demand from a growing Europe is now on course to source 50% of its energy
and more discerning population, Australia’s transition from renewable sources by 2024.9 As the largest
towards a more diverse, dispersed and cleaner energy investor into European solar, OR contributed to the
mix will not be without challenge; however, it provides success of the UK and wider European market, placing
significant opportunities for investment. OIA in a strong position to help drive forward renewable
energy investment in Australia.
3.1. The transition from fossil fuels:
Europe offers a vision of the future Australia is in a prime position to benefit from the
Australia’s transition away from fossil fuels is lagging in experience of these other markets as renewable energy
comparison to countries with similar energy markets becomes cost competitive with traditional fossil fuel
where OR is active. energy sources. The country is already on track to reach
50% of energy generation in the next 9 years, but
As the OR team saw specifically in the UK, once
OIA believes this transition could occur more rapidly
momentum behind renewables deployment gathers, the
and turbulently than implied by the gradual transition
transition away from non-renewable sources has been
shown in Figure 5 and discussed further in 3.2.
quicker than forecast by governments or economists
Figure 5: Changing Energy Mix: Europe/UK/Australia (Fossil fuels vs Renewables) (%)10
Europe's Energy Generation Mix (%) UK’s Energy Generation Mix (%) Australia’s Energy Generation Mix (%)
100
86%
Renewables
79%
Renewables
80
60 50% 50% 50% 50%
Renewables Renewables Renewables Renewables
40
20
0
2012 2020 2024 2035 2012 2020 2024 2035 2012 2020 2024 2029 2035
Coal Renewables
9
Bloomberg New Energy Finance, 2019. 10
Bloomberg New Energy Finance, 2019.
16 Confidential Information Memorandum3.2. Drivers of renewables investment in Australia
Australia is forecast to invest $170 billion into renewable energy by 2050.
With the prevalence of cheap domestic reserves of coal economic life, requiring investment to redevelop
and gas, Australia has been slow to adopt renewable these overworked assets should they continue to run.
energy: in 2019, Australia sourced 76% of its energy By 2030, 55% of Australia’s coal powered stations on
demand from non-renewable sources, 54% from coal the National Energy Market (”NEM”) will be 40 years
alone.11 However, the unannounced closure of the or older, approaching obsolescence, and becoming
Hazelwood power station saw a dramatic increase in more unreliable, costly to maintain, and subject to
energy prices and highlighted the need to replace an failures.13 In response, the Government’s Environment
ageing energy infrastructure. At the same time, cost and Communications Committee noted in 2016, ”the
competitive renewables helped launch the utility scale question is not if coal fired power stations will close,
solar industry from a near standstill in 2016, when just but how quickly and orderly these closures will occur,
c300MW was in operation, to an estimated 2.0GW and what supporting policies, if any, will be in place
commencing construction in 2018 alone, but this is to help manage the process.” 14
still short of the 28GW the Australian Energy Market
The sudden closure of the 1.6GW Hazelwood power
Operator (”AEMO”) anticipate would be needed to
station in March 2017 illustrates the impact an
help replace retiring coal generators see Figure 6.12
unorderly transition can have across states, as
OIA sees the following as the key supply and demand energy prices rose significantly over the following
drivers which will underpin a robust market for year in Victoria (up 85%), New South Wales (63%),
renewable investment. Queensland (53%) and South Australia (32%).15
Liddell and Vales Point power stations are both
Energy Supply Constraints
similar sizes to Hazelwood and are forecast to close
• Coal plant retirements and cost competitive over the next 10 years (see Figure 6) with closures
renewables: Many of Australia’s existing coal and gas- accelerating thereafter.
powered stations are reaching the end of their useful
Figure 6: Australia’s retiring coal fleet between 2018 and 205016
Department of Environment and Energy, Australian Energy Statistics, 2020. 12 PV Magazine, Australia’s Clean Energy Council reports
11
2GW of utility scale commencing construction in 2018. 13 Climate Council, End of the Line Coal: Coal in Australia, p8. 14 Senate Standing
Committee on Environment and Communications, Retirement of Coal Fired Power Stations Interim Report, 2016. 15 Australian Energy
Regulator, Wholesale electricity prices higher since Hazelwood exit, 2018. 16 AEMO observations: Operational and market challenges to
reliability and security in the NEM, 2018.
Octopus Renewable Energy Opportunities (OREO) 17AEMO, who is responsible for the stability of Australia’s (10.5GW) and storage (17GW/90Gwh), with small gas
energy system, noted that, over the next 20 years, a mix plants in a supportive role (0.5GW).
of renewable energy and storage is best placed to
The transition is driven by cost competitive renewables,
replace existing energy supply instead of reinvestment
relative to the cost of extending the life of coal
or new investment into the coal fleet. Planned
or brand-new coal generation capacity over the
replacement is to be led by solar (28GW), wind
foreseeable future (Figure 7).17
Figure 7: Cost of energy generation in Australia18
120
Levelised cost of energy, A$/MWh
100
80
60
40
20
0
2020 2025 2030 2035 2040 2045 2050
New coal Life extending coal Onshore wind
Combined cycle gas turbine (CCGT) Firm utility-scale solar PV Utility-scale solar PV
While the cost of renewables technology (like solar constraints on new development resulting in upward
panels and wind turbines) has dropped significantly pressure on energy prices. AEMO reiterated this view,
in recent years, remaining costs of a site are made up stating that, in certain areas across Australia, new
of components such as framing, transformers, and renewable energy generators ”will likely be prevented
inverters as well as labour costs, transport and any from generating at full capacity unless additional
requisite grid upgrades that may be imposed by AEMO, investment was made to remediate the impacts on
which are not following similar cost reduction trends system strength.” 19
seen with the core renewables technology.
In July 2020, AEMO published an update to the
Grid infrastructure: The NEM operates the world’s Integrated System Plan, which sets out a road map
longest and thinnest interconnected power system as the grid transitions away from using fossil fuels to
between Port Douglas, Queensland; Port Lincoln, renewable energy, rooftop solar and electric vehicles.
South Australia; and Geeveston, Tasmania, with an The Integrated System Plan proposes remediation such
end-to-end distance of approximately 5,000 kilometres. as investment into new and existing transmission lines,
This system was built to distribute energy from a few minimum notice periods for coal plant closures and
select large (mainly coal) generators to large cities as strategic reserves to avoid blackouts. While some of
well as disparate towns and areas across the entire east these proposals are being put in place (such as required
and south of the country. notification of coal closures three years in advance20)
unless required investment into the grid is forthcoming,
AEMO recognise that a diverse energy mix will include
immediate renewables deployment could be tempered.
renewable energy plants located around the country
and, as such, the grid will need to be upgraded to OIA view such potential restrictions as benefiting
accommodate these new generation sources that assets that can secure connections with AEMO on
behave differently to older technologies. Despite advantageous locations on the grid, as these will
this recognition, OIA’s view is that investment in the benefit from short-term supply constraints, which
grid may be slower than needed, which could put should feed through to energy pricing.
AEMO, Integrated System Plan, 2018.
17 18
Bloomberg 2020. 19
AEMO, Integrated System Plan, 2018. 20
AEMO, National Electricity
Amendment, 2018.
18 Confidential Information MemorandumEnergy Demand Drivers • The impact of prolonged heatwaves on grid resilience
Climate Change and Population Growth (where increased system stress can result in increases
in individual plant failures, particularly in ageing
Increasing temperatures and presence of prolonged
plants); and
heat events impact the reliability of the energy system
in various ways. These include increased challenges • The increased risk associated with bushfires during
associated with the following: these periods, which impact system availability.
• Managing ”coincident peaks” (concurrent hot and AEMO has also highlighted that sustained 40-degree
humid days in multiple regions and across major days in Victoria and Sydney could be a catalyst for
cities in the NEM, particularly when combined with energy demand levels typically seen only once a
projected population growth and an increase in decade. Such increases would need an additional
air-conditioning); 380MW of resources to compensate in Victoria alone.21
Figure 8 – Australian mean temperature anomaly showing year-on-year change in average temperatures22
1914 +0.22 °C
+1.2 ºC
+1.0 ºC
+0.8 ºC
+0.6 ºC
+0.4 ºC
+0.2 ºC
0
+0.2 ºC
+0.4 ºC
+0.6 ºC
+0.8 ºC
+1.0 ºC
+1.2 ºC
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Mean temperature anomalies averaged over Australia (as calculated from the 1961-1990 average.)
The black line shows the 11-year moving average
Australia’s population is growing, which could exacerbate countries in the developed world, increasing in population
the issues shown in Figure 8. Over the last decade, the to 40 million by 2050,24 and, rising with it, the potential
population increased by 16.9% to 25.5 million people.23 for greater energy demand.
Australia is forecast to be one of the fastest-growing
21
AEMO, 2018 Electricity Statement of Opportunities, 2018. 22 Australian Bureau of Meteorology, Annual Climate Statement, 2019.
23
Australian Bureau of Statistics, September 2019. 24 Population Australia, Population growth of Australia, 2020.
Octopus Renewable Energy Opportunities (OREO) 19Shift in attitudes: Energy customers, consumers The demand for corporate PPAs is also likely to
and investors are becoming much more discerning remain strong, with sustained interest and activity in
regarding the impact of their consumption and Corporate PPAs in the current market. According to a
investment. 90% of Australians expect their survey of members of the Business Renewables Centre
superannuation and other investments to be invested Australia there were high levels of interest and activity
responsibly and ethically.25 amongst buyers and developers with 62% of buyer
members pursuing or investigating renewable PPAs.26
Corporates, governments and other large energy users
also understand that their customers and constituents The market for PPAs is also expanding, with PPAs
expect them to consider their environmental impact. being considered by many non-profit organisations,
Corporate PPAs are now an established feature of the recreation and exhibition venues, transportation
Australian market with nearly half (46%) of big businesses infrastructure projects and governments. Some
in Australia currently using renewable energy. Unilever, notable examples of executed renewable energy
Mars, Telstra, BlueScope, Coca-Cola Amatil, ANZ, power offtake agreements within these sectors include
Woolworths and AB Inbev as just a few examples – have Sydney Opera House, Zoos Victoria and Melbourne
all signed power offtake agreements with Australian Convention and Exhibition Centre, Sydney Metro and
renewable energy projects. Australia has seen one Yarra Trams, University of Melbourne, the University of
of the highest levels of corporate and industrial PPA Queensland, Victoria (via the VRET), Queensland (via
uptake in the world, with demand for PPAs second only the Renewables 100) and the ACT.
to the United States with respect to total PPA capacity
(MW). See Figure 9 below.
Figure 9: Global Power Purchase Agreement market ex-USA27
Australia 2,367
Sweden 2,180
Norway 1,925
Brazil 1,632
Chile 1,363
United Kingdom 1,310
Mexico 1,114
Spain 949
Finland 822
0 500 1000 1500 2000 2500
PPA Capacity (MW)
The Australian public is becoming more discerning a premium for products or services made with
about how energy is generated, and this impacts their renewable energy.28
preferences. Most Australians are willing to pay
80% 76% 64%
Australian consumers believe big would choose a product or service would pay a premium for
businesses should be using more made with renewable energy over a products or services made
renewable energy comparable one that wasn’t with renewable energy
Responsible Investment Association Australasia, Growing consumer demand for ethical investing, 2017.
25 26
ARENA, The Business of
Renewables, 2017. 27 BNEF 2020. 28 ARENA, The Business of Renewables, 2017.
20 Confidential Information MemorandumOctopus Renewable Energy Opportunities (OREO) 21
3.3 Investment Characteristics: Defensibility and Diversity
Like infrastructure, established renewable energy underpin defensible returns and provide diversity to
investments such as solar and wind represent a wider portfolio of investments. Below illustrates the
ownership in the physical components and land that 4 key characteristics of renewable energy assets, which
provide an essential public service (clean energy). underpin the defensibility and diversity infrastructure
Once constructed, infrastructure assets are designed investment thesis.
to perform in a stable and predictable manner, which
1. Fuel Source 2. Revenues
Fuel sources of Solar and Wind assets have 3 key Renewable assets monetise the energy generated from
important characteristics. First, renewable energy fuel their fuel sources in two ways: First via long term fixed
volumes like the sunlight and wind are not market linked. price contracts with corporate or government buyers
(‘Power Purchase Agreements’ or ‘PPAs’) which provide
Second, global bankable standards are used for
long term visibility on cashflows. PPAs look to the direct
how sun and wind fuel volumes are measured. Such
credit risk of the offtaker, which are either investment
methodologies take into account decades of weather
grade or have support from an investment grade
data to give a good statistical understanding of the
credit. Given the uncorrelated nature of the fuel source
availability of the natural resource.
alongside a PPA, sites can perform consistently through
Finally, such natural fuels are zero marginal cost or free times of market volatility.
to use. Meaning renewable energy is cost competitive
Second, revenues are also generated from selling
against fossil fuels (which have to pay for their fuels)
the residual energy not covered by a PPA into the
when selling its energy in the wholesale market. As a
wholesale energy market. As discussed in Section 3.2,
result, for a given level of demand, renewable energy
the Manager believes the Australian energy market
will likely be utilised ahead of more expensive forms of
provides some compelling fundamentals that are
energy such as coal and gas as renewable energy can
driving returns. Further, as recent shocks to Australian
realise a gross margin for its energy at any positive price.
GDP from the COVID-19 pandemic have shown, this
revenue stream is relatively resilient. Unlike other
infrastructure revenue streams (such as airport or
road traffic), energy demand has remained strong in
Australia dropping only 3-6% (depending on the state).
Further, these short term demand shocks have not
fundamentally altered, in the Manager’s view, the long
term drivers discussed in Section 3.2.
22 Confidential Information Memorandum3. Operations 4. Capital Structure
With revenue lines established as per (1) and (2) above, The Manager believes capital structures for renewable
the robustness of operational cashflows is driven by the energy assets should be structured to protect the
long term visibility of operations and maintenance costs solvency of the asset, especially in times of volatility or
of a renewable site. The operations for Solar and Wind economic shocks. This could be achieved by sizing debt
sites are relatively self-contained: that is few onsite around the fixed cashflows derived from the PPA and
manual tasks are required to operate a plant day to day taking into account the fixed operational and capital
as the sites are responding to the availability of natural expenditures. As a result fluctuations in wholesale
resources instead of manual or mechanical tasks (such energy prices would not overly pressure the solvency of
as feeding a combustion turbine a fuel source). the asset in times of uncertainty, as witnessed during
the COVID-19 pandemic.
A relatively low touch point for operations translates
into visible long term fixed operational contracts and
low on-going capital expenditures relative to revenues.
The robust availability of natural resources and visible
revenue streams combined with low fixed on-going
operation and capital expenditure, are likely to result
in high EBITDA and cash margins.
Octopus Renewable Energy Opportunities (OREO) 233.4 Government Policy overview
Federal Government Policy
The Renewable Energy Target – incentivising investment into
Renewable Generation.
The Renewable Energy Target (‘RET’) is an Australian With the recent boom in renewable energy investment,
Government scheme implemented originally in 2001 the LRET target is forecast to be met over the coming
and designed to reduce emissions of greenhouse gases years. Additionally, with renewable energy now becoming
in the electricity sector and encourage the additional viable without subsidies like the LRET, the government
generation of electricity from sustainable and recently signalled that it will shift its policy towards
renewable sources29. accommodating the anticipated build out of non-
subsidised renewable energy into the market. This was
The Renewable Energy Target works by allowing
detailed in the Department of Industry, Science, Energy
both large-scale power stations and the owners of
and Resources’ Technology Investment Roadmap, which
small-scale systems to create large-scale generation
sets out Australia’s energy priorities as it seeks to bring
certificates (‘LGCs’) and small-scale technology
down carbon emissions over the next 30 years.
certificates for every megawatt hour of power they
generate. Certificates are then purchased by electricity
The immediate energy focus of the roadmap
retailers (who supply electricity to householders
is on integrating renewables into the system
and businesses) and submitted to the Clean Energy
with natural gas a supporting technology for
Regulator to meet the retailers’ legal obligations under
renewables going forward.
the RET. This creates a market which provides financial
incentives to both large-scale renewable energy power Given that renewables are now viable without subsidies,
stations and the owners of small-scale renewable the Government recognises that support is needed
energy systems. around the power grid and what are known as ‘firming’
The Large-scale Renewable Energy Target (LRET), technologies which provide support when intermittent
encourages investment in large-scale renewable generation from renewables does not cover demand.
power stations to achieve 33,000 gigawatt hours of Core to that end is storage technology and
additional renewable electricity generation by 2020, understanding how to make intermittent generation
which represents about 20% of Australia’s energy dispatchable. As such, this will be a key focus of where
consumption. The target stays the same from 2020 support will come from the Government. OIA are
to 2030 and, under the current law, new renewable already seeing this at a state level where the team
energy power stations can continue to be accredited are engaged in multiple processes to realise storage
after 2020. capabilities on our sites.
The Technology Investment Finally, another consideration is the role fossil fuels will
play in according to the roadmap: the report is silent
Roadmap details policy to support on coal support, which is significant given coal is the
incorporating renewables into the largest supplier of energy in Australia. Furthermore,
Australian energy mix. natural gas is mentioned in the report as having a
supporting role to play in fostering the build out of
renewables instead of replacing large capacities of
retired coal generation.
29
http://www.cleanenergyregulator.gov.au/RET
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