Javier Romero Ledesma (Javier Romero), the Spanish Shanghai-based financier and visionary entrepreneur, is investing in Renewable Energy Technology and since recently in cutting-edge Biotechnology through his ChinaLink and Gamma Funds. He has been one of the early investors into Solar Energy in the early 21st Century. His GSF Capital was the biggest independent Solar IPP (Independent Energy Producer) in the world, he has invested into more than 2500 MWs of Renewable Energy power plants in Europe and Asia. Recently, in 2015, through his Gamma Hedge Fund, he predicted the fall of Solar Yieldcos and glut in the solar industry. Smart Energy Magazine recently interviewed Javier Romero, at his Shanghai office, situated besides the iconic Oriental Pearl tower and IFC Tower in the heart of Pudong´s Financial District.
Q. What was the idea behind ChinaLink Capital?
ChinaLink´s vision was to invest into new industries that were going to shape the 21stCentury, we started with Renewable Energies as it was obvious to me that one of the biggest threats of humanity was global warming and pollution, and the technology (Solar and Wind) was already mature to move the energy mix from fossil fuels into clean energy. Also, I was confident that China was the catalyst needed by the industry because it is the country with the biggest incentive to eradicate pollution, it has the technology and manufacturing capacity to reduce energy levelized costs due to their manufacturing scale and they need to add hundreds of GWs of new power plants.
ChinaLink started to invest in renewable energy power plants in Europe and manufacturers like Sungrow in China, and then we started to invest in other Cleantech companies. Taking these companies IPO into the Stock market.
Q.You were among the most vocal advocate against the Yieldco model. What were your apprehensions?
As you rightly pointed out, I advised my investors against the Yieldco companies listed in stock exchanges, in particular the ones who were supposed to be the strongest because the controlling shareholder was a Solar Company either manufacturer and/or developer.
First of all, there was a clear conflict of interest for the sponsors who were financially motivated to dump any power plant into the Yieldcos at the highest possible price because it translated into a massive and immediate profit in the holding company.We did our internal analysis of the assets being included in the Yieldcos and their IRR, the conclusion was that the liabilities of the Yieldcos were more than what they could sustain and the IRRs were completely unrealistic.
Yieldcos were using lot of jargon such as warehouse financing, cash flow available for distribution, etc. to convince investors, which took for granted the most important thing- production of the power plants and operating costs, therefore EBITDA- everyone took for granted those and they were wrong.It is true that we have operated power plants before, so we knew solar production and financing better than anyone else. In some cases, it was as simple as knowing that the Chinese Government never paid the subsidized part of the FIT. So analysts and investors made those mistakes.
Q.What is the current status of the solar fund in India? What is the investment strategy that you are looking at for solar funding in India?
India is a tough market for a foreign player due to irrational tax structures in India especially the DDT (Divident distribution Tax). So, if I earn $100 on my investment, I have to pay 33% as corporate tax and on top of that 17% as DDT on any dividend, which is repatriated to the equity investors. So, for a pure Private Equity Fund, like us, it is close to impossible to make a reasonable return on our investment, so we concentrate more in Solar Farm Development to sell to other investors. But at the same time, India is very attractive market for the long term once reforms are made to attract foreign investment.
I am very optimistic with the new reforms promised by the current government.
Hence, we are looking for partners with strong background and who are keen to go big in solar. Our ideal partner will be someone, who can raise local debt in India and exit trough an IPO in India or the USA. We will bring our expertise and strengths in Solar. We will work together with them to get that debt substituted by debt outside India after IPO at a cheaper rate at a later stage.
Q.What is going to be the size of the solar fund and the returns you are targeting?
In grid scale solar, anything less than 1GW does not make sense, but we are OK to go for lower size to start with. We have done our internal assessment and projects with 16% will be able to meet our hurdle rates.
We will use our expertise in solar financing and execution to increase the overall return on equity.
Q.With the government in India targeting 100GW from solar energy by 2020, what kind of opportunities does the sector presents to an investor like GSF Capital?
Unfortunately, the government related sector comes with its own issue. We are keener on the private consumption model. We believe the real driver will be the private sector demand for electricity. But this scenario assumes that the government will provide some parity and incentives to private consumers to switch to solar.
Q.From an investor’s perspective what are the challenges for solar sector in India and how to overcome these challenges?
As I stated earlier, our challenges are more of local nature such as lack of project financing model in India, taxation issues and regulatory issues. We plant to partner with some strong local player to overcome these challenges.
Q.What are the changes that you look forward to, that you think the government need to make, in the solar sector in India?
We expect the government to focus on the private sector and decentralized model, instead of grid scale government purchase model. Given the issues with stability of the grid and lack of dynamic pricing models in distribution, decentralized development makes more sense in India.
In western countries, consumers pay more for peak hour usage and less for non-peak usage. This leads to higher utilization of the power plants and optimization of the grid. Government has to keep this in mind, instead of copying the western model.
The current government is interested in attracting foreign investment into the country, they have to realize that if they create an attractive tax regime, solar investment is highly attractive and they will be able to attract billions of dollars and cheap debt will follow.This will create an example for other sectors. This will reduce massively the cost of capital in India and create phenomenal economic growth which will be sustainable by itself.
Q.With India emerging hot destination for investment in the solar sector, how do you plan to compete with the foreign investment coming in this sector?
As a pure play, private equity player, we have the advantage of focus and expertise. Our deep expertise and domain knowledge has no parallels in the industry. That is why when people were drawing big bets on Yieldcos, we were shorting stocks of Yieldcos.
Hence, there is no competition for us, when it comes to solar.
Q.We have read in the international press about your new genetic investment Mutagenesis Corp. with some Nobel Prizes inside, any plans to bring Biotech investments into India?
India has a very strong Pharma industry, I am sure that we could bring some biotech and genetic-based investments into India. Soon you will know about it.
