The investment announced by Pension Danmark a few weeks ago was an unusual one.

The large pension company invested more than DKK 100m (EUR 13.4m) in Danish cleantech company Stiesdal. The company develops climate technologies including Skyclean, a renewable jetfuel concept made by subjecting agricultural waste to pyrolysis, and also works with wind turbine technology, energy storage and Power-to-X.

After years of close collaboration on wind farm development with Copenhagen Infrastructure Partners (CIP), Pension Danmark Chief Investment Officer Claus Stampe made what he calls an early-stage venture investment.

The partnership with CIP and previous direct investments within infrastructure and renewable energy are a significant explanation for Pension Danmark's investment in Stiesdal.

"This is the first time we are making a direct investment in this type of company, which is a developing company," Stampe says.

"We are doing this because we think that because of the long history we have of investing in renewable energy, we are able to do the required due diligence and can handle an investment like this. Our due diligence has also been supported by numerous external advisors, who have helped to evaluate the commercial potential of Stiesdal's four product lines," Stampe explains.

Board members

Having two seats at Stiesdal's board is important as it gives Pension Danmark the opportunity to follow and contribute to the company's development, Stampe notes.

"So, the fact that we know a lot about the industry and that we are close to the company has been a determining factor. There is a strong ownership circle and leadership team at the company which has a wealth of experience within renewable energy," the CIO says.

According to Stampe, the investment in Stiesdal reflects other direct investments made by Pension Danmark in renewable energy – and the fact that the pension company has worked closely with CIP, including sitting on its investment committee.

Stiesdal was founded by the former Siemens Wind Power Chief Technology Officer Henrik Stiesdal, who has played a crucial role in the development of the Danish wind industry. Since 2014, the company has also worked on a number of new climate technologies. There is an acute need for these technologies, says Stampe.

New technologies on a big scale

If the world is to meet the agreed CO2 reduction goals over the next few years, and if this is to be done in a commercial and sustainable way, then this means new technologies must be implemented, Stampe notes.

"These technologies need to be industrialized so that costs can be kept at a level where they can compete with oil and gas based alternatives – a technology that means they can be rolled out on a massive scale," he says, adding:

"The developments we have seen within on and offshore wind over the past 15 years will be accelerated dramatically when it comes to PTX and energy storage, for example."

Stampe says Stiesdal's four product lines are extremely strong, especially the development of floating foundations, the Tetraspar design, for offshore wind turbines. This technology could dramatically multiply the number of deployable offshore wind turbines around the world, with big potential for Stiesdal.

Strong team

Stampe explains that Pension Danmark has "great confidence" in Tetraspar, whereas the company is not quite as far along with energy storage, PtX and its Skyclean concept.

"But these things seem promising," Stampe notes.

Then company's assessment that Stiesdal will succeed in bringing one or several of its products to market is based on the company's team led by Henrik Stiesdal and Peder Nickelsen, Stampe adds.

"Both have been key profiles in the last many years of offshore wind development, which become successfully industrialized, making offshore wind competitive with fossil energy. So, with Stiesdal's experience and our evaluation of their advanced development, we deem that they have fine opportunities to among the winners with green technologies. If successful, it will be a fantastic investment," Stampe says.

More co-investments

Concerning Pension Danmark's direct investment in Stiesdal as a developing business, Stampe calls it an exception.

"In the future, we expect to make several direct investments in companies – but we expect these to be as co-investments alongside private equity firms, as we will be beyond our areas of knowledge on the green transition," Stampe says and adds:

"Looking at both ourselves and the rest of the sector, there's been a lot of co-investment activity both as a way to save investment costs, but also because it makes sense to have private equity as a co-owner when involving investments for which active ownership can generate return premia."

Skyrocketing prices

Stampe says buying interest in, for instance, a commissioned offshore wind farm no longer makes the sense it once did. The challenge with such renewable energy assets featuring stable, predictable cash flows is that they're traded with very low required returns. It's clear, he says, that a low-yield environment and many investors' desires to invest green has sent prices skyrocketing.

"Looking at the forecast returns we can make on a commissioned offshore wind farms with long, fixed price agreements, these are often lower than what we'd make on office real estate in Copenhagen with long-term leases."

"So, if we're going to invest within the infrastructure segment, it would have to be through CIP-managed funds, which function as project developer and can thereby reap a developer's bounty ­ or via companies or assets which through active ownership enable increased revenue and earnings. We've typically done so through funds," Stampe concludes.

English Edit: Catherine Brett & Daniel Frank Christensen

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