The infrastructure funds listed as of the end of August 2022 are all funds that invest in renewable energy generation facilities, primarily solar power generation facilities.
Below is an explanation of investment risks specific to such infrastructure funds that should be particularly noted.
Please note that the following information is based on laws, regulations, and other rules as of the end of August 2022, and may be subject to change due to subsequent amendments to laws, regulations, and other rules. When investing in individual infrastructure funds, please do so at your own risk after confirming the disclosure documents and other information provided by each infrastructure fund.
Schemes Related to Renewable Energy
To address climate change issues and improve Japan's energy self-sufficiency, the government has established various programs to promote the introduction of renewable energy. In particular, the feed-in tariff (FIT) and feed-in premium (FIP) schemes, described below, are schemes that support the income of operators who generate electricity using renewable energy generation facilities, and the income of the power producers as lessees is the source of rental income. They are also important schemes for infrastructure funds, which use the income of power generators as a source of rental income, to support their revenues. In addition, an increasing number of renewable energy power generation facilities are being constructed using government subsidies aimed at promoting the introduction of renewable energy.
These programs differ in the characteristics and content of the assistance and support that can be enjoyed depending on the application of each program. Power generation projects constructed and operated under these schemes are subject to their restrictions in implementation, as they are required to fulfill the requirements for using such schemes and comply with the regulations and guidelines set forth in such schemes. Therefore, when investing in a listed infrastructure fund, it is necessary to understand the details of the scheme applicable to the renewable energy power generation facilities in which the infrastructure fund invests, as well as the risks inherent in this. And, in cases where the FIT scheme is not applicable (including cases where the FIP scheme is applicable), there are various methods and conditions for the sale of electricity and environmental values, so it is necessary to understand such methods and conditions.
In addition, when conducting power generation business, regardless of whether or not a FIT or FIP scheme is applied, it is necessary to comply with the Electricity Business Act and other laws and regulations related to the safety, maintenance, management, and disposal of electric utilities and renewable energy power generation facilities, as well as regulations and terms and conditions established by the Electric Power Wide-area Operation Promotion Organization and General Transmission and Distribution Utility, etc.
The above systems and rules may be changed or abolished in response to national policies, international conditions, market trends, or other reasons. Such changes or abolitions may affect the profitability and business continuity of the power generation business.
Even if the FIT and FIP schemes are changed or abolished, it is assumed that necessary measures will be taken to ensure that the renewable energy power generation facilities that have been approved and are in operation at the time of the change or abolition will not be affected. However, as a result of the change or abolition of this system, the number of newly developed and constructed renewable energy power generation facilities may decrease. In addition, even if new renewable energy power generation facilities are developed or constructed, the profitability of such facilities may decline, making them unsuitable for investment. As a result, it should be noted that the acquisition of new renewable energy power generation facilities by listed infrastructure funds may be hindered.
In addition, contrary to the above assumption, if the FIT or FIP schemes are changed or abolished in a way that affects the renewable energy power generation facilities that have already started operation, the power producer as a lessee may not be able to continue its power generation business or may not be able to earn income from power sales from the power company under the same conditions as before. If these circumstances actually occur, the amount of rent in the portfolio already held by the listed infrastructure fund may decrease in line with the income from the sale of electricity, or the payment of rent that is not linked to the income from the sale of electricity may be delayed due to a lack of funds to pay the rent. As a result, the listed infrastructure fund's rental income may decrease, which may ultimately have an adverse effect on the interests of the listed infrastructure fund and its investors.
Risks Related to the Feed-In Tariff (FIT) Scheme
One feature of listed infrastructure funds that J-REITs do not have is that the source of their rental income, i.e., the income from electricity sales by lessees of renewable energy power generation facilities, is largely supported by a legal system known as the FIT scheme.
The FIT scheme is based on the Act on Special Measures Concerning Procurement of Electricity from Renewable Energy Sources by Electricity Utilities (Act No. 108 of August 30, 2011, including subsequent amendments). This requires electric power companies to purchase electricity generated from renewable energy power generation facilities that have been approved by the Ministry of Economy, Trade and Industry for their power generation business plan at a fixed procurement price for a fixed procurement period. A portion of the electricity purchase cost by power companies is collected from electricity users in the form of a levy, so electricity users are the ultimate cost bearers for the introduction of renewable energy power generation.
Since the renewable energy power generation facilities owned by the listed infrastructure funds are basically certified under the FIT scheme, lessees who lease renewable energy power generation facilities from the listed infrastructure funds and conduct power generation business can receive stable and continuous income from electricity sales from power companies. As a result, listed infrastructure funds will be able to receive stable and continuous rental income based on such power sales income. The following is an explanation of the risks associated with such feed-in tariffs.
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| Fixed Procurement Price and Procurement Period |
For renewable energy power generation facilities that have been certified under the FIT scheme and have commenced operation, the procurement price and procurement period applied at the time of commencement of operation will not, in principle, be changed after the fact. Therefore, listed infrastructure funds can expect stable and continuous returns by investing in renewable energy power generation facilities to which the scheme applies.
In addition, the procurement price and procurement period for electricity generated by renewable energy power generation facilities are, in principle, set every fiscal year by the Minister of Economy, Trade and Industry after hearing the opinions of the Procurement Price Calculation Committee (depending on the type and scale of the power generation facility, the procurement price may be set through bidding, and the scope of this is currently expanding year by year). Reflecting the decline in construction costs due to technological innovation and market competition, the maximum procurement price or bidding price has been lowered year by year, and may be lowered further in the future. If the procurement price or bidding price ceiling is set lower or the procurement period is set shorter in the future operation of the FIT scheme, the number of newly constructed renewable energy power generation facilities may decrease, or the profitability of newly developed and constructed renewable energy power generation facilities may decline, making them unsuitable for investment. As a result, the acquisition of new renewable energy power generation facilities by listed infrastructure funds may be hindered. |
| Vulnerability to Inflation |
Since the procurement price under the FIT scheme is fixed, even if prices rise due to inflation, the electricity sales price cannot be increased, and the electricity sales income of the lessee, the power producer, may be substantially diminished. The impact of such an increase would directly affect the rental income of the listed infrastructure fund, which is funded by the income from the sale of electricity, and may cause a substantial diminution in the latter. In addition, costs and other expenses related to the management and operation of renewable energy power generation facilities may increase as prices rise due to inflation. In these cases, it should be noted that the listed infrastructure fund's revenues may deteriorate, resulting in an adverse impact on the interests of the listed infrastructure fund and its investors. |
| Output Control |
Recently, there have been cases of output control being implemented at solar power generation facilities in which listed infrastructure funds have invested. Output control is a mechanism whereby electric power companies request solar power generation facilities to curb their output and control the amount of output in order to ensure a balance between supply and demand of electricity. Output control is required when certain circumstances specified in the Enforcement Regulations for the Act on Special Measures Concerning Procurement of Electricity from Renewable Energy Sources by Electricity Utilities (Ordinance of the Ministry of Economy, Trade and Industry No. 46 of 2012. Including subsequent amendments), such as when the amount of electricity supplied by an electric power company is expected to exceed its demand, apply. It should be noted that if such output control is implemented, the income from electricity sales by the lessee, which is a power generation company, may decrease, and as a result, the rental income of the listed infrastructure fund, which is funded by the income from electricity sales, may decrease, which may have an adverse effect on the listed infrastructure fund and its investors' profits. |
| Sale of Electricity After the Expiration of the Procurement Period |
When the procurement period under the FIT scheme expires, renewable energy power generation facilities are no longer subject to the FIT scheme, and electric power companies are not obligated to purchase electricity generated by such renewable energy power generation facilities at a certain price after that time. Therefore, in order to continue power generation business using renewable energy generation facilities whose procurement period has expired, it is necessary to continue selling electricity after negotiating and agreeing on prices and conditions with the power company, selling electricity on the wholesale electricity market, or finding a partner to sell electricity on your own. In such cases, there is a possibility that the lessee may not be able to find a suitable power seller, and even if a power seller is found or if power is sold in the market, the lessee may be forced to sell power at a purchase price and under conditions that are less favorable than the previous purchase price and conditions under the FIT scheme, resulting in a decrease in the power sales income of the lessee as a power generation company. As a result, the rental income of the listed infrastructure fund that uses this income as a source of funds may decrease, and the interests of the listed infrastructure fund and its investors may be adversely affected. |
| Trends in FIT Schemes |
Since the introduction of the FIP scheme, discussed below, renewable energy power generation facilities of a certain power source type and size have been newly certified under the FIP scheme only, and are no longer subject to FIT schemes, which, as mentioned above, had enabled power producers to sell electricity under favorable conditions. This is a growing trend. As a result, there is a possibility that the number of newly installed solar and wind power generation facilities will decrease, or even if they are built, they will not be suitable for investment, and listed infrastructure funds may not be able to acquire solar and wind power generation facilities as they wish. |
Risks Related to the Feed-in Premium (FIP) Scheme
The Act for Partial Revision of the Electricity Business Act, etc. for the Purpose of Establishing a Robust and Sustainable Electricity Supply System (Act No. 49 of 2020, including subsequent revisions) was enacted on April 1, 2022. The FIP scheme is a system under which electricity generated from renewable energy sources which are expected to grow into competitive power sources are traded on the market in the same way as other power sources, and a certain premium is added to the market price (Feed in Premium = FIP). The FIP scheme allows the electricity generated to be traded on the wholesale electricity trading market or in relative transactions, while providing a premium for the difference between the base price (FIP price) (fixed) and the price based on the market price (reference price). (The revised Renewable Energy Special Measures Law defines the premium as a "subsidy to promote supply").
The following is an explanation of the risks associated with the FIP scheme. In addition, when the FIP scheme is applied, there is a risk of output control as described above under "Output Control" in "Risks Related to the Feed-in Tariff (FIT) Scheme".
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| Dependence on the Method and Destination of Electricity Sold |
Under the FIP scheme, there is no party obligated to purchase electricity as under the FIT scheme, and power generators must either sell electricity through the wholesale power trading market or find a party to sell electricity on their own. In addition, in order to participate in the wholesale power trading market, power producers must meet certain requirements, including net asset value. This is particularly problematic in cases where the financial condition of the utility company deteriorates, bankruptcy proceedings are initiated against the utility company, or the power purchase agreement is terminated due to cancellation, termination, or other reasons. In such cases, there is a possibility that a new buyer cannot be found, that the electricity cannot be sold through the wholesale electricity market, and that the electricity cannot be sold, or that even if it could be sold, the price and other conditions for the sale of electricity may be less favorable than the previous conditions. In the case of power sources of less than 1,000 kW to which the FIP scheme is applied, if the supply of renewable electricity is disrupted due to bankruptcy of the supplier or other circumstances not attributable to the certified utility, the certified utility may conclude a temporary procurement contract and sell the electricity to a general transmission and distribution utility. However, the purchase price of electricity sold under a temporary procurement contract is set at 80% of the standard price under the FIP scheme, and the period of availability is limited to a maximum of 12 consecutive months.
Under the FIP scheme, depending on the method and conditions of electricity sales, the income from electricity sales may fluctuate due to short-term fluctuations in market prices, and the power producer is required to notify the general transmission and distribution company of the planned amount of electricity generation and settle the difference between the planned amount and the actual amount generated with the general transmission and distribution company through an imbalance fee.
Thus, when implementing a power generation project under the FIP scheme, the power producer may be subject to hassles, costs, and risks that do not arise under the FIT scheme. |
| Base Price and Bidding Trends |
As described in "Fixed Procurement Price and Procurement Period" in "Risks Related to the Feed-in Tariff (FIT) Scheme" above, the procurement price under the FIT scheme has been reduced year by year and may be further reduced in the future, but the base price, which is the basis for calculating the supply promotion subsidy (premium) under the FIP scheme, and the upper limit of the bidding price is also expected to be reduced in the future in the same way. Furthermore, the number of projects for which the base price is determined by bidding tends to expand. As a result, there is a possibility that the number of renewable energy power generation facilities newly installed by businesses will decrease from the viewpoint of investment profitability, etc. |
| Link to Revenues from the Disposal of Environmental Values |
In the case of the FIP scheme, the power producer may receive income from the sale of non-fossil value certificates and other dispositions of environmental values, but if the rent from the renewable energy generation facilities is linked to such income, the rental income of the FIP will be affected by the operating conditions of the generation facilities and changes in the prices of non-fossil value certificates and other items. |
Risks Associated with Corporate PPAs
In response to the growing needs of corporate customers to procure electricity generated from renewable energy sources, an increasing number of renewable energy power generation facilities are being constructed and operated on the premise of conducting transactions for the purpose of selling electricity and environmental value to specific customers (so-called corporate PPAs). Among corporate PPAs, off-site PPAs, which generate electricity at a location away from the location of demand and supply electricity through the power grid, are in principle required to sell electricity through a retail electricity supplier due to regulations under the Electricity Business Act. In addition, some corporate PPAs are subject to the FIP scheme when selling electricity through a Retail Electricity Utility or wholesale electricity trading market.
The following section describes the risks associated with such corporate PPAs.
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| Dependence on the Method and Destination of Electricity Sold |
In a business that sells electricity through a corporate PPA, regardless of whether or not it is subject to the FIP scheme, there is no one who is obligated to purchase the electricity as under the FIT scheme, and the aforementioned risks associated with this (see "Risks Related to the Feed-in Premium (FIP) Scheme" above) exist. In addition, the main terms and conditions of the corporate PPA are agreed with the customer, and the payment for the purchase and sale of electricity is often dependent on the business conditions and financial resources of the customer, and the contract period of the corporate PPA is often shorter than the procurement period of the FIT scheme or the delivery period of the FIP scheme. In the event that a customer's business situation or financial resources deteriorate, bankruptcy proceedings are initiated against the customer, or the contract with the customer is terminated due to cancellation, termination, expiration, or other reasons, it may become necessary to find a new counterparty. In such cases, the business may not be able to find a new counterparty and may not be able to sell electricity or environmental value through the wholesale electricity market, and even if it could sell electricity, the price and other terms of the transaction may be less favorable than the previous terms. |
| Trends in Regulations and Rule Development |
Since corporate PPAs are a transaction that has only recently spread in Japan, regulations under the Electricity Business Act and other laws and regulations related to it, rules for connection and use of power grids, derivative transaction regulations that may apply to the settlement of differential payments among related parties as part of so-called virtual PPAs, rules related to direct acquisition of non-fossil value by consumers and other regulations and rules are still under development and future transactions may be affected by such trends. |
Risks Related to Asset Characteristics
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| Characteristics as a Depreciable Asset |
Existing listed infrastructure funds mainly invest in solar power generation facilities among renewable energy power generation facilities. However, solar power generation facilities and other renewable energy power generation facilities have different asset characteristics from buildings, which are the investment targets of J-REITs.
First, since many renewable energy power generation facilities are located in rural areas, the price of land accounts for a relatively low proportion of the acquisition price of renewable energy power generation facilities and sites, while the price of renewable energy power generation facilities accounts for a relatively high proportion, resulting in the listed infrastructure fund's total assets As a result, the ratio of depreciable assets to total assets of listed infrastructure funds tends to be high. In addition, the statutory useful life of renewable energy power generation facilities is about 15 to 20 years, which is a shorter period than that of buildings (for example, the statutory useful life of a steel-framed reinforced concrete or reinforced concrete building used as an office building is 50 years). Therefore, listed infrastructure funds tend to record relatively large amounts of depreciation expenses compared to J-REITs. Since depreciation is an expense that is not incurred, the listed infrastructure fund is left with cash on hand. If this situation continues, the book value of renewable energy power generation facilities will decrease due to the progress of depreciation, while cash will increase, and the delisting criteria for asset inclusion ratio ("Where the ratio of the amount of infrastructure assets, etc. to the total amount of assets under management, etc. has become less than 70% at the end of every business period for the listed infrastructure fund, and does not reach 70% or more within a year") will be met. In order to avoid such a situation, it is necessary to maintain the asset inclusion ratio by acquiring additional new assets.
In addition, as mentioned above, listed infrastructure funds tend to increase their cash reserves in line with depreciation and amortization expenses. As an approach using such cash on hand, reinvestment in the form of repairs and expansion of owned assets and additional acquisition of new assets, as well as repayment of borrowings may be considered, and as a measure to return profits to investors, a portion of funds equivalent to depreciation expenses may be distributed to investors as cash distribution in excess of profits. Unlike dividends of surplus in stock companies, investment corporations are allowed to make distributions in excess of earnings. In fact, many listed infrastructure funds make distributions in excess of earnings on an ongoing basis, but distributions in excess of earnings have the nature of a return of capital.
If such distributions in excess of earnings in the nature of a return on capital are made on an ongoing basis, the total assets (cash) and total net assets (capital contributions) of the listed infrastructure fund will decrease. (i.e., "If the total amount of assets of the listed infrastructure fund is less than JPY 2.5 billion at the end of each fiscal period, it will not increase to JPY 2.5 billion or more within one year," and "If the total amount of net assets of the listed infrastructure fund is less than JPY 500 million at the end of each fiscal period, it will not increase to JPY 500 million or more within one year").
Furthermore, it should be noted that the ratio of distributions in excess of earnings to distributions by a listed infrastructure fund may be high as a result of the listed infrastructure fund making distributions in excess of earnings by using a large amount of depreciation. In such cases, even if the amount distributed on hand is a large amount, for accounting purposes, the amount of profit distributed itself is a small amount, and in reality, a large amount of capital is being returned. Therefore, when examining investment profitability, it is necessary to properly understand not only the distribution yield but also the breakdown of the amount of profit distributed and the amount of distribution in excess of profit. |
| Operational Assets |
The renewable energy power generation facilities to be acquired by the listed infrastructure fund have the characteristics of so-called operational assets, which generate revenue through the operator's management and operation of such facilities. In other words, the profitability of renewable energy power generation facilities can be affected by the operator's ability to manage and operate them. Therefore, the role of the operator is important in the scheme of a listed infrastructure fund (the operator may be the lessee, or the SPC may be the lessee and the SPC may separately entrust the operator with the management and operation of the asset). In light of these points, rules for the selection of operators and information disclosure are stipulated in the various regulations of Tokyo Stock Exchange, etc. Upon the listing of an infrastructure fund, the basic policy for selecting operators, the formulation of selection criteria, and the actual selection status are examined, and certain facts regarding the operator are subject to timely disclosure.
If the operator's financial situation deteriorates or bankruptcy proceedings are initiated, the management and operation of renewable energy power generation facilities may be hindered. In such a case, it may be necessary to replace the operator. However, since the operator's duties require specialized knowledge and experience, it may not be possible to appoint an operator with sufficient knowledge and experience at the appropriate time. As a result, it should be noted that income from electricity sales and rental income may decrease, and the interests of the listed infrastructure fund and its investors may be adversely affected. |
Characteristics of Renewable Energy Generation Facilities
While the descriptions elsewhere on this page are all common asset characteristics for renewable energy power generation facilities, this section describes the main asset characteristics specific to each power source as shown in the table below. This section will focus on solar power generation facilities, which are the main investment targets of existing listed infrastructure funds, and wind power generation facilities, which are likely to become investment targets in the future, and will also touch on hydroelectric power generation facilities, geothermal power generation facilities, and biomass power generation facilities.
In general, the specific risks associated with renewable energy power generation facilities other than solar power generation facilities include the following: the number of power producers is small, there are location restrictions, and the trading market is immature. There is also a risk that the listed infrastructure fund may not be able to appoint an operator or O&M service provider with sufficient capability and expertise under the conditions desired by the listed infrastructure fund, as there are fewer operators that maintain, manage, and operate this type of renewable energy power generation facilities because they are technically more difficult to maintain and manage and operate than solar power generation facilities.
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| Solar Power Generation Facilities |
The amount of electricity generated by solar power generation facilities varies depending on the amount of solar radiation, but the environment surrounding solar power generation facilities may deteriorate due to reasons beyond the control of the listed infrastructure funds, such as the construction of new buildings in the vicinity or the growth of plants in the vicinity that restrict sunlight to the solar power generation facilities after the fact, which may block sunlight to the solar cell modules. In addition, there is a possibility that the sunlight to the solar cell modules will be blocked due to continued unseasonable weather or snow accumulation. There is also a risk of damage to solar cell modules due to strong winds or lightning strikes.
In case of deterioration of photovoltaic power generation equipment, etc., the EPC contractor or manufacturer may have the right to demand performance of representations and warranties, liability for defects or nonconformity to contract, performance warranty, availability warranty, or manufacturer's warranty from the EPC contractor or manufacturer, but the EPC contractor or manufacturer may not be able to fulfill its obligations if the period for exercising rights or notice expires, the EPC contractor or manufacturer is dissolved or becomes incompetent, or for other reasons.
In addition to the above, with respect to solar power generation facilities, there is a risk of disputes with neighboring residents due to land development, reflected light from solar panels, landscape issues, etc. |
| Wind Power Generation Facilities |
There is a risk of fluctuations in power generation due to wind conditions. There is also a risk of damage to wind turbines due to windstorms, lightning strikes, etc.
Repairing or replacing wind turbines requires skill and effort, and it may take time to dispatch engineers and procure replacement parts. In addition, if one or more wind turbines must be shut down due to malfunction, damage, etc., the power generation company's income from electricity sales may decrease significantly during this time. The time required to restore wind power generation facilities depends on the capabilities and technologies of the wind turbine manufacturer or O&M contractor responsible for repairs, its domestic staffing, and the availability of replacement parts in storage. Even if the wind turbine manufacturer or O&M contractor has sufficient capabilities and systems, there is no guarantee that these capabilities and systems will be maintained in the future, and the O&M contractor may lose its ability to perform due to deterioration in its financial condition, bankruptcy proceedings, or other reasons. Furthermore, because there are only a few companies that have a certain level of capability and structure, etc. to repair wind power generation equipment, there is a risk that if the wind turbine manufacturer or O&M contractor loses its capability to perform, an alternative O&M contractor with sufficient capability, structure, etc. cannot be appointed under the conditions desired by MHR.
In addition, there are cases in which a wind turbine manufacturer or O&M contractor guarantees a certain level of performance (power curve) or availability for a certain period of time, but such guarantees may become unavailable due to the expiration of the guarantee period, deterioration in the financial condition or bankruptcy proceedings of such wind turbine manufacturer or O&M contractor, or other factors.
In addition to the above, wind power generation facilities are subject to the risk of disputes with neighboring residents due to noise from wind turbines, radio interference, changes in the landscape, or the removal or scattering of parts and other materials. |
| Hydroelectric Power Generation Facilities |
Risks specific to hydraulic power generation facilities include the risk of fluctuations in power generation due to changes in water volume, and the risk of power generation becoming impossible due to dam/weir breaches caused by flooding. |
| Geothermal Power Generation Facilities |
Risks specific to geothermal power generation facilities include the risk of not being able to reliably secure such rights over the procurement period due to the underdeveloped legal system concerning rights to use hot springs, and the risk of depletion of hot springs or a decrease in the volume of hot spring water due to continuous use of hot springs or use of hot springs on neighboring land. |
| Biomass Power Generation Facilities |
Risks specific to biomass power generation facilities include the risk that sufficient fuel cannot be stably procured and the risk of exchange rate fluctuations when imported biomass fuel is used, as well as the risk of unlimited and uncompensated output curtailment. |
Risks Related to Conduit Status for Tax Purposes
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| Limited Period of 20 Years |
In the case of J-REITs, if certain requirements are met (hereinafter referred to as "conduit requirements"), the amount of dividends, etc. is included in deductible expenses for tax purposes and the investment corporation is effectively exempt from corporate taxation (so-called pay-through taxation). Such pay-through taxation makes it possible to avoid double taxation, whereby taxation on the investment corporation and taxation on investors overlap.
However, it should be noted that unlike J-REITs, the conduit status of listed infrastructure funds is allowed under the current system only when renewable energy generation facilities are leased, and only for approximately 20 years after listing. In other words, a listed infrastructure fund that invests in renewable energy power generation facilities is required to obtain certain special exceptions in order to meet the conduit status requirements, but such special exceptions apply only from the date of first acquisition of the renewable energy power generation facilities to the date after the date of first leasing of the renewable energy power generation facilities. However, the application of such special provisions is limited to each fiscal year ending on or after the 20th anniversary of the date of the first acquisition of the renewable energy power generation facility and the date of the first loan of the renewable energy power generation facility. Under the current system, listed infrastructure funds only have conduit status for approximately 20 years and do not have permanent conduit status. Therefore, it is anticipated that there will be cases in which the listed infrastructure fund does not meet the conduit requirements after the expiration of the applicable period for such special exception, in which case the tax burden of the listed infrastructure fund may increase, which in turn may have an adverse effect on the interests of investors. |
| Enforcement of Rental Schemes |
It should be noted that in order for listed infrastructure funds to qualify for the above special exception, the investment method of the listed infrastructure fund is limited to a certain extent due to the restriction that the listed infrastructure fund needs to limit the management method of renewable energy power generation facilities that it invests in directly or through anonymous association investment to leasing. Therefore, it is necessary to note that the investment methods of listed infrastructure funds are limited to a certain extent.
For example, let us consider a case in which a listed infrastructure fund incorporates a silent partnership interest in an asset-owning SPC that owns and operates renewable energy power generation facilities developed and constructed by a private placement fund, etc. (a so-called indirect investment case).
First, under the above restrictions, the asset-owning SPC must lease the renewable energy power generation facilities to a third party, which requires a change in the existing scheme. In other words, the third party will be responsible for selling electricity to third parties, which requires not only the approval of the lender of the asset-owning SPC (which usually has project finance in place), but also the approval of the SPC and the succession of various contractual statuses related to the facility and the electricity sales business. The procedures for these procedures are burdensome. In addition, as a conduit, the investment corporation must have 50% of the total number or total amount of issued shares or capital contributions (including investments in anonymous associations) of other corporations. From this perspective, the scheme for the transfer of equity interest in anonymous association by the listed infrastructure fund will be subject to restrictions.
Thus, it should be noted that the smooth and flexible acquisition of renewable energy power generation facilities may be hindered as a result of a listed infrastructure fund being forced to adopt a leasing scheme in order to satisfy conduit requirements. |
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