Innovation & Investment
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Infratil Annual Report 2021 Innovation & Investment 01 Addressing social & environmental challenges The lack of preparation for the covid deprivation and loss of personal positive returns on all of financial, pandemic resulted in extreme measures fulfilment, are all challenges with shared human, social and natural capital. to protect people and maintain consequences. “Privatising profits and Infratil’s goal is to provide good risk- economic equilibrium. Because they socialising costs” is in focus and is adjusted returns for shareholders and were considered necessary to save lives impacting how companies prioritise in so doing to allocate capital and to many measures crossed established their responsibilities to their owners and manage its activities in recognition of boundaries of personal freedoms and to society and the environment. To be wider responsibilities. It must also be cost, without causing social backlash successful for its owners a company accountable through measurement, (mainly). must show that it is positively reporting, and transparency. While covid remains a threat, attention contributing to its people, to those who is now focused on other environmental use its services, to its community and to Last year will be remembered and social concerns. And fueled by the the environment. for the speed of change. experience of covid, there is both Especially with climate change, Coincidentally environmentalist urgency to get ahead of the challenges corporate profits are no solace if global David Attenborough published and willingness to undertake big, if not warming continues with terrible a testament reflecting on the extreme, measures. consequences. world since 1937 when he was But there are other lessons that should But anyone who wants to see social and 11 and what needs to happen be taken from the covid response. environmental challenges met and to reverse the environmental The benefits of social unity and shared surmounted, should also want to enlist degradation he has witnessed. responsibility, and the efficiency which corporate innovation, investment and While environmental harm is comes from good planning and capability. Companies cannot invest to management (and the cost when only deliver social and environmental undeniably accelerating, he planning and execution are poor). goods. If they don’t provide a return on also opines that reversing the Covid, climate change, species financial capital that capital will be harm could happen quickly, with extinction, social dislocation, withdrawn, but they must also deliver commitment and good policies. David Attenborough ‘A Life on Our Planet’ Population. Wilderness. Atmosphere 1937 1954 1960 1978 World population: 2.3 billion Remaining wilderness: 66% Carbon in atmosphere: 280 parts per million Forestation and wilderness can be • The information explosion resulting increased, marine life can be revitalised, from mobile connectivity and emissions can be curtailed, the global ubiquitous devices requires specialist population can be stabilised; in each case data processing and storage facilities by applying rational policies. and telecommunications infrastructure. Delivering ethical goals needs plans • Rising demand for health services is based on sound science and economics, driving the need for efficient and execution that is efficient, effective, technological responses to improve and accountable. All core requirements of outcomes and affordability. successful companies. • The increasing population of elderly Anticipating and preparing for change is people seeking independence, the foundation of how Infratil allocates its community, and care is resulting in capital. increasing demand for retirement • Predicting increasing societal response accommodation with access to to the threat of climate change drove specialist health services. Infratil’s early investment in renewable generation. • Expansion of the Asian middle classes and their increasing ability to travel requires increasing airport capacity. The objective now is to maintain the benefits of connectivity while meeting 2050 emission targets. 1989 1997 2011 2020 World population: 7.8 billion Remaining wilderness: 35% Carbon in atmosphere: 415 parts per million 01 Tilt Renewables Infratil has contracted to The original reasons for getting into wind Also, Infratil is actively undertaking sell its 65.5% shareholding in generation were simply that wind was the renewables projects in the U.S.A. and Tilt Renewables (“Tilt”) for lowest-cost form of renewable generation, Europe and considers that there are $2,000.2 million. Settlement could be scaled to suit requirements and investment opportunities in those regions opportunities, offered short development which offer the prospect of better returns is expected to occur later in times, and a lot of renewable generation on the funds released from the Tilt sale. the year following regulatory was going to be required as climate It should be noted that while the approvals. change became a motivating concern. successful outcome of Infratil’s investment Infratil’s net investment into Tilt was Given Tilt’s pipeline and the continuing was based on a series of key decisions $108.2 million. The $1,892.0 million gain likely demand for more renewable starting in 1994, the performance of Tilt’s on sale reflects a series of decisions generation on both sides of the Tasman, management was crucial. Following starting in 1994. the reasons to sell are more complex. the demerger from Trustpower, Deion Through Trustpower and then Tilt, Infratil The key consideration was that the sale Campbell and his team developed a was an early backer of wind powered price of the Australian assets placed a high performing culture based on strong generation in New Zealand and Australia. large value on Tilt’s development pipeline. values. Their outstanding delivery All up the two companies invested On a like for like basis (comparing the reflected excellence across the full $2,150 million building 1,106MW of Australian and New Zealand asset values) life-cycle of each project; early stage capacity with annual output of 3,768GWh. the development pipeline attracted a development, investment analysis and The largest installation of capacity of any value of approximately $1 billion. For the decisions, construction, power sales Australasian wind-generation developer. buyers there is a value in that potential, terms, funding, and operations. including strategic benefits, which Infratil They created an industry leading would struggle to match. platform that delivered the great outcome for investors, and Infratil’s highest ever exit value. Tilt Renewables Doing well. Doing good 1999 2007 2008 2011 2014 Manawatu Manawatu South Australia Otago South Australia 73 metres high Households receiving electricity: 17,000 CO2 reduction per year: 54,000 tonnes 02 Doing Well While Doing Good While all of Tilt’s generation cost Infratil’s long-term shareholder returns of Tilt’s operational wind farms (including the $2,150 million to build, Snowtown 2 18.8% per annum over 27 years have been one sold in 2019) cost $2,150 million to which cost $453 million was sold in 2019. based precisely on creating investment build. In a year of normal wind they are Deducting this sold asset gives a options. They do not reflect buying a expected to generate 3,768GWh of $1,697 million cost to build everything business and selling the same business electricity, sufficient for about 540,000 else which has a $3,238 million value at five years later. The returns have arisen average households. Giving an average the acquisition price (debt and equity). because after its purchase, the business capital cost per household of about This is however a little misleading as a will have invested in expanding its $4,000. significant part of Tilt’s value on sale was capacity and will have built a pipeline of its development pipeline which is not future investment opportunities. Were the same electricity generated by reflected in the historic construction costs. efficient gas-fired power stations it would The value created for Infratil comes from result in emissions of about 1.7 million An Infratil shareholder may look back at both the increased earnings the business the September 2020 $913.7 million value would have generated from investing in its tonnes of CO2 a year (coal-fired generation would produce about twice of Infratil’s Tilt shareholding and wonder if activities and from the potential for future they could have anticipated the increase investment and hence future earnings this amount of CO2). That is about 4% of to $2,000.2 million seven months later. growth. This second part is the option New Zealand’s total CO2 emissions. That would have been difficult, but they value. At current New Zealand emission prices, could have gauged if there was an option gas-fired generation emitting 1.7 million value intrinsic to the asset and factored in tonnes of CO2 would incur an annual cost some anticipation of that value being of about $60 million, giving wind realised, albeit with no certainty of timing. generation an appreciable relative advantage, which will increase if the price of emissions increases. 2014 2018 2021 2021 South Australia Victoria Taranaki Victoria 189 metres high Households receiving electricity: 540,000 CO2 reduction per year: 1,700,000 tonnes 03 The history of Tilt The history of how Tilt came into being 2004-2007 2018 and how Infratil secured its interest is Tilt commissioned the Salt Creek Wind an example of strategic vision made TrustPower added a further 36.3MW Farm in western Victoria. concrete. Kudos is due to Infratil’s and then 93MW to its Tararua wind energy management team led by farm capacity at a combined cost of Cost: A$105 million $223 million (to produce an additional Dr Bruce Harker. Turbines: 15 Vestas 3.6MW turbines with a 443GWh of annual generation). blade tip height of 110 metres He steered Infratil into the electricity sector in 1994, then out of distribution Output: 172GWh produced by 54MW of (lines) and into generation, then into wind 2002-2008 capacity generation, and then into wind generation TrustPower developed and commissioned Infratil invests $108 million increasing in Australia.