Two major Canadian investments announced Friday have refocused attention on an often overlooked sector seen as crucial for the low-carbon energy transition: distribution.
The Ontario Teachers’ Pension Plan said Friday it will pay £1.47-billion ($2.4-billion) for a 25-per-cent stake in SSEN Transmission, a division of Scotland-based SSE PLC, which delivers hydroelectric power from northern Scotland to the rest of Britain. The deal represents the pension plan’s largest-ever power distribution investment.
Separately on Friday, the Canada Infrastructure Bank and Canadian Imperial Bank of Commerce announced they have committed $135-million each in funding for Markham District Energy, which provides centralized heating and cooling for 230 buildings north of Toronto.
Together, the deals indicate a growing level of investor interest in the basic infrastructure required to decarbonize electrical and utility grids around the world.
“A lot of the attention gets put on the wind turbines, batteries, and solar,” said Evan Pivnick, program manager at Simon Fraser University’s Clean Energy Canada initiative, “but what doesn’t get much attention is how much the energy grid itself fundamentally has to change to support a new renewable-based energy system.”
“The distribution side is very essential and very underappreciated at this point,” Mr. Pivnick said. “Yet the transmission and distribution systems are going to be what makes the difference between achieving our [climate] targets and not.”
In the United States alone, there are thousands of renewable energy generation and storage facilities that are already complete but are still waiting to be connected to the national grid. According to data from the Lawrence Berkeley National Lab, cited by a McKinsey & Co. report published this year, the total surpassed 5,000 in 2020.
The size of the Teachers’ investment “is very exciting to us,” said Jason Wang, an Edmonton-based clean electricity program analyst for the Pembina Institute. “Especially in the case of a transmission project, it really indicates to us that huge investors see transmission as a safe place to put your money; a safe bet on the future.”
The SSEN transaction is the latest in a series of investments Teachers has made specifically in the power transmission and distribution space.
Last year, the pension plan took a 40-per-cent stake in Finnish power distributor Caruna, which is in the process of burying most of its power lines in order to “weatherproof” its grid. Also in 2021, Teachers purchased the entirety of power transmission network Evoltz, which owns more than 3,500 kilometres of lines spanning 10 Brazilian states.
While the terms of those deals were not disclosed, Dale Burgess, executive managing director of infrastructure and natural resources at Teachers, said the fund’s total infrastructure assets under management has grown by more than 60 per cent in the past five years: from $18.7-billion in 2017 to $30.6-billion in June, 2022.
The $270-million combined Canada Infrastructure Bank and CIBC investment in Markham District Energy is particularly relevant for the transition plans of countries like Canada, said Clean Energy Canada’s Mr. Pivnick. Decarbonizing home and commercial heating and cooling is another challenge that has not received sufficient attention or investment to date, he said.
Mr. Wang of the Pembina Institute said projects that can help decarbonize building heating and cooling systems are “incredibly important” to transition to a net-zero economy.
“We really have to tackle both electricity and heat in our economy in a two-pronged approach,” he said.
Palash Ghosh of Pensions & Investments also reports Ontario Teachers' acquires 25% stake in renewable energy transporter:
Power technology also reports SSE to sell stake in SSEN Transmission to Ontario Teachers’:
UK-based energy company SSE has agreed to sell a 25% stake in SSEN Transmission, its electricity transmission network business, to Ontario Teachers’ Pension Plan Board (Ontario Teachers’).
The stake is being sold for a total cash transaction of more than £1.4bn ($1.7bn).
The sale process is expected to begin early next year and the deal is expected to close shortly.
SSE said that the transaction is based on an effective economic date of 31 March this year.
The company will use the proceeds from the sale to support growth in its other core businesses while ensuring a balance of capital allocation across the group.
SSE Finance director Gregor Alexander said: “We are delighted to agree a transaction that will help unlock the full potential of our growing electricity transmission business, which remains core to our strategic direction as a clean energy champion specialising in electricity infrastructure.
“As we set out in our Net Zero Acceleration Programme last year, due to the scale of potential growth and the associated investment required across SSE’s businesses, including in electricity networks, bringing in minority partners will balance capital allocation and support further growth, creating greater long-term value for all our stakeholders.”
Despite the sale of the stake, SSE will continue to be the majority shareholder of the business and keep control of its operations and management.
The deal with Ontario Teachers comes after SSE announced last November that it planned to extend its partnering approach to its core electricity distribution and transmission network assets.
This would be done via the sale of minority stakes in SSE Renewables and SSEN Transmission under the Net Zero Acceleration Programme (NZAP).
SSE’s NZAP could reportedly help deliver around 20% of the offshore wind generation and electricity networks required in the UK by 2030.
On Friday, Ontario Teachers’ put out a press release stating it has agreed to acquire a 25% stake in SSEN Transmission to deliver renewable energy to millions of homes across the UK:
LONDON, UK – Ontario Teachers’ Pension Plan Board (‘Ontario Teachers’) has reached an agreement with Scotland-based energy provider SSE plc (‘SSE’) to acquire a 25% minority stake in its electricity transmission network business, SSEN Transmission, to provide clean, affordable renewable energy to millions of homes and businesses across the UK.
The transaction is based on an effective economic date of 31 March 2022, and total cash proceeds of £1,465m for the 25% stake are expected at completion. The transaction is expected to complete shortly.
SSEN Transmission, which operates under its licenced entity, Scottish Hydro Electric Transmission plc, transports electricity generated from renewable resources – including onshore and offshore wind and hydro – from the north of Scotland across more than a quarter of the UK land mass. The investment by Ontario Teachers’ will help support the UK Government’s Net Zero 2050 targets, including the delivery of 50GW of offshore wind capacity by 2030.
Charles Thomazi, Senior Managing Director, Head of EMEA Infrastructure & Natural Resources, from Ontario Teachers’ said:
“SSEN Transmission is one of Europe’s fastest growing transmission networks. Its network stretches across some of the most challenging terrain in Scotland – from the North Sea and across the Highlands – to deliver safe, reliable, renewable energy to demand centres across the UK.
We’re delighted to partner again with SSE and are committed to supporting the growth of its network and the vital role it plays in the UK’s green energy revolution.”
Rob McDonald, Managing Director of SSEN Transmission, said:
“With the north of Scotland home to the UK’s greatest resources of renewable electricity we have a critical role to play in helping deliver the UK and Scottish Governments net zero commitments. Our investments will also be key to securing the UK’s future energy independence through enabling the deployment of homegrown, affordable, low carbon power.
“With significant growth forecast in transmission, bringing in Ontario Teachers’ as a minority stake partner will help fund our ambitious investment plans as we continue to deliver a network for net zero emissions across the north of Scotland.”
Ontario Teachers’ Infrastructure & Natural Resources group invests in electricity infrastructure worldwide to accelerate the energy transition with current investments including Caruna, Finland’s largest electricity distributor, Evoltz, a leading electricity transmission platform in Brazil, and Spark Infrastructure, which invests in essential energy infrastructure in Australia to serve over 5 million homes and businesses.
About Ontario Teachers’
Ontario Teachers' Pension Plan Board (Ontario Teachers') is a global investor with net assets of $242.5 billion as at June 30, 2022. We invest in more than 50 countries in a broad array of assets including public and private equities, fixed income, credit, commodities, natural resources, infrastructure, real estate and venture growth to deliver retirement income for 333,000 working members and pensioners.With offices in Hong Kong, London, Mumbai, San Francisco, Singapore and Toronto, our more than 400 investment professionals bring deep expertise in industries ranging from agriculture to artificial intelligence. We are a fully funded defined benefit pension plan and have earned an annual total-fund net return of 9.6% since the plan’s founding in 1990. At Ontario Teachers’, we don’t just invest to make a return, we invest to shape a better future for the teachers we serve, the businesses we back, and the world we live in. For more information, visit otpp.com and follow us on Twitter @OtppInfo.
About SSE
SSE has the largest renewable electricity portfolio in the UK and Ireland, providing energy needed today while building a better world of energy for tomorrow. It develops, builds, operates and invests in low-carbon electricity infrastructure needed in the transition to net zero, including onshore and offshore wind, hydro power, electricity transmission and distribution grids, and efficient gas, alongside providing energy products and services for businesses. UK listed, SSE is a major contributor to the UK and Ireland economies, employs around 11,000 people and is real Living Wage and Fair Tax Mark accredited.
SSE's strategy is to create value for shareholders and society in a sustainable way by developing, building, operating, and investing in the electricity infrastructure and businesses needed in the transition to net zero. Its strategic focus is on renewables and regulated electricity networks, businesses which have strong, net zero-aligned growth potential with common skills and capabilities in the development, construction, procurement, financing, and operation of world-class, highly technical electricity assets.
About SSEN Transmission
SSEN Transmission is responsible for the electricity transmission network in the north of Scotland, investing in and maintaining the high voltage 132kV, 220kV, 275kV and 400kV electricity transmission network.
SSEN Transmission’s strategic objective is to enable the transition to a low carbon economy. It does this by building the electricity transmission network infrastructure required to connect and transport renewable electricity from the north of Scotland to areas of demand, as it delivers a network for net zero emissions.
This is another huge core infrastructure investment for Ontario Teachers’ Infrastructure & Natural Resources group led by Dale Burgess.
Recall, it was a little over a year ago that OTPP announcedit is participating in a consortium with Brookfield to acquire a 50% stake in Scotia Gas Networks Ltd, the second largest gas distribution network in the UK.
Since then, it has announced several major investments including the most recent $805 million investment to help NextEra Energy expand its massive renewables portfolio.
When it comes to Teachers' portfolio, core infrastructure and fixed income play critical roles in providing stable cash flows.
In a rising rate environment, core infrastructure is playing an especially critical role.
Electricity transmission is a key investment theme for Ontario Teachers’ Infrastructure & Natural Resources group and its also part of the organization's 2025 and 2030 interim targets to dramatically reduce greenhouse gas emissions as part of its journey to achieve net zero on its investment activities by 2050:
Ontario Teachers’ has set industry-leading targets to reduce portfolio carbon emissions intensity by 45% by 2025 and two-thirds (67%) by 2030, compared to its 2019 baseline. These emission reduction targets cover all the Fund’s real assets, private natural resources, equity and corporate credit holdings across public and private markets, including external managers.
“As an active, global investor, we play a critical role in helping accelerate the transition to a net-zero economy,” said Jo Taylor, President and CEO. “Given the scale and complexity of our investment portfolio, we believe this is an ambitious plan that will meaningfully lower emissions and contribute to the plan’s long-term sustainability.”
Ontario Teachers’ net-zero plan aims to actively reduce its portfolio carbon emissions, while concurrently contributing to building the net-zero economy. Key points include:
- Significantly growing investments in companies that generate clean energy, reduce demand for fossil fuels and build a sustainable economy;
- Pivoting asset class strategies increasingly towards green investments;
- Actively investing in transition assets to secure future direct and tangible reductions in carbon emissions;
- Setting portfolio companies on a clear path to implement Paris-aligned net-zero plans and meaningfully reduce emissions;
- Issuing green bonds and investing the proceeds in climate solutions and sustainable companies;
- Advocating for clear climate policies and partnering with other industry leaders to effect global change;
- Reporting annually on progress against the 2025, 2030 and 2050 targets.
“Climate change permeates the entire investing landscape. Tackling it requires substantial effort and massive amounts of capital,” said Ziad Hindo, Chief Investment Officer. “By significantly growing our portfolio of green investments and working collaboratively with our portfolio companies to transform their businesses, we can make a positive impact by encouraging an inclusive transition that benefits our people, communities and portfolio companies.”
Ontario Teachers' has focused on climate change for over a decade. It has developed substantial climate-related expertise, invested significantly in climate-friendly opportunities and worked to make portfolio companies greener and more resilient. As at June 30, its portfolio includes more than C$30 billion in green investments such as renewable energy, energy storage, electrification, electricity transmission, energy efficiency and green real estate. In 2021, it has committed over C$5 billion to climate and transition solutions to date.
You begin to understand why Ontario Teachers' is massively investing in electricity transmission.
In fact, if you haven't done so, I recommend you read OTPP's Power Shift Report here to understand why they're investing in electric grids to accelerate the energy transition.
This latest deal of £1.47-billion ($2.4-billion) for a 25% stake in SSEN Transmission, a division of Scotland-based SSE PLC, which delivers hydroelectric power from northern Scotland to the rest of Britain, represents the pension plan’s largest-ever power distribution investment.
Despite the sale of the minority stake, SSE will continue to be the majority shareholder of the business and keep control of its operations and management, but Teachers' will gain seats on its board.
SSE will use the proceeds to grow its operations and its Net Zero Acceleration Programme (NZAP)could reportedly help deliver around 20% of the offshore wind generation and electricity networks required in the UK by 2030.
SSE already has the largest renewable electricity portfolio in the UK and Ireland, providing energy needed today while building a better world of energy for tomorrow.
To sum up, this is an excellent deal for SSE and Ontario Teachers', forging a strong partnership to help the UK deliver cleaner energy by 2030.
Below, SSEN Transmission is responsible for the electricity transmission network in the north of Scotland and the Scottish Islands. As part of the SSE plc group, they're proud to be a Principal Partner of COP26. Scotland’s transmission network has a key arterial role to play in supporting delivery of the UK’s net zero target, connecting the clean renewable energy needed to support greater societal decarbonisation and electrification.
SSEN Transmission is investing in a Network for Net Zero, as outlined in our stakeholder-ledRIIO-T2 business plan for the current price control from March 2021 – March2026. In this video, they explain why the next price control period for transmission will be a critical period in supporting a cost-effective, just transition and enabling infrastructure investment to accommodate the net zero ambitions of the customers, communities and stakeholders they serve.