BlackRock’s NZ$2bn climate fund to be a ‘template for other markets’

BlackRock has launched its largest single-market climate-focused infrastructure strategy, aiming to raise NZ$2 billion ($1.2 billion; €1.1 billion) through a closed-end fund model that it hopes to replicate in other countries.

The vehicle, which has received support from the New Zealand government and for which fundraising is underway, will aim to raise all its capital from institutional investors in New Zealand.

BlackRock’s Asia-Pacific co-head of climate infrastructure Charlie Reid told affiliate title Infrastructure Investor that the firm had seen “significant demand” from its New Zealand client base for a vehicle that would enable them to invest in their own country’s energy transition.

“So we decided to create this initiative to enable those investors to access investment opportunities in their market and to accelerate the next phase of the energy transition,” he said.

“Our first investment in this market last year, into a company called Solar Zero, gave us a window into where the country is on the energy transition – and New Zealand is in the future, with over 83 percent renewable energy generation today. If you compare that to a market like Australia that was at more than 90 percent fossil fuel generation, but it is targeting 82 percent renewables by 2030, New Zealand is already there.

“But they require very significant investment to take their next steps, as they migrate towards 100 percent renewables by 2030.”

While declining to provide specific details about the fund structure, Reid said it would be “very similar” to BlackRock’s other infrastructure funds in other markets. The firm aims to hit its NZ$2 billion fundraising target by the end of 2024, after making its first capital deployments this year.

The New Zealand government has not provided a capital commitment to the fund, Reid clarified, but is rather providing “spiritual support”. BlackRock has managed capital on behalf of a range of New Zealand clients for many years, including some of the country’s crown entities.

Reid also declined to comment on the fund’s target returns, only saying: “The interest rate environment has changed over the last 18 months, which has pushed up the cost of capital for institutional investors. Today, in order to attract institutional capital into climate infrastructure assets, you need to be delivering yield in the high single digits.”

Reid said BlackRock intends for this be the first fund in a “rolling programme” that can provide capital to accelerate New Zealand’s energy transition over the long term, as well as being a model that could be replicated in other countries, targeting each jurisdiction’s respective institutional investors.

“This is the largest single-market strategy that we’ve developed and as we look around the world, we see a range of opportunities in the energy transition across markets. It is hoped this initiative can provide a template for other markets over time,” he said.

“Largely, I think the natural long-term owners of these assets are local institutions, which is owing to a range of risk factors including, for example, currency – but also the end-members of those institutional investors look to touch and feel the assets they invest in, in their home countries. We think it’s a great fit for institutional investors to be investing in these assets for the long term in their own markets.”

BlackRock’s climate infrastructure team has more than 75 people worldwide, along with teams dedicated to procurement and securing corporate offtakes for energy projects, which Reid said would be a “key revenue driver” in New Zealand.

“New Zealand’s energy transition is so far ahead in many respects, but it’s also behind many other large markets in certain key technologies. The first of those is large-scale solar – there is very little of that in New Zealand but it has all the attributes you would want [to develop the market]. Alongside that, we also see [opportunity to] develop large-scale battery assets – not on the same scale that we have in Australia, for example, but projects in the order of 50-100MW,” he said.

“And thirdly, we see ever-growing demand, as we do across the world, for electric vehicles. But the charging infrastructure is lagging behind that demand, so one of our first investments will likely be in electric vehicle charging infrastructure.”

BlackRock has pursued climate infrastructure investments for many years, returning to the market with the fourth iteration of its Global Renewable Power Fund series earlier this year, with plans to raise up to $7 billion. The vehicle’s previous vintage, Global Renewable Power Fund III, closed on $4.8 billion in April 2021.

The firm’s flagship Global Infrastructure Fund IV will also have a climate focus and reached a $4.5 billion first close in October 2022 on its way to meeting a $7.5 billion target.