Net Zero Infrastructure (LSE:NZI) is a new cash shell which has just listed on the London Stock Exchange. It is one of only a small number cash shells – or Special Purpose Acquisition Companies – currently available in London.
Net Zero Infrastructure will be seeking to make acquisitions in the growing industry that is supporting the expansion of the UK’s clean energy sector and indirectly supporting the UK’s ambitions to meet net zero carbon emissions targets.
Let’s put this into context. The UK is going to need to scale up its infrastructure and quickly if it is going to meet its carbon emissions targets. It became the first major global economy to pass legislation to end its contribution to global warming by 2050. It also intends to reduce national emissions by 78% by 2035. These are ambitious goals that will require the assistance of private – and public – companies.
It is our view that the majority of the investment going into the renewable and clean energy sectors has, naturally enough, focused on the technologies needed to generate the power, but not the unique challenges that are presented in storing and delivering renewable energy.
What does this mean in practice?
Hargreaves Lansdown or IG
It is important to emphasise that it is the intention that this cash shell will be transformed into a trading entity, rather than an investment one. A company will be created with its own P&L that will have one or more underlying businesses in the renewables market.
Like other cash shells, Net Zero Infrastructure also represents a way for one or more currently privately held private infrastructure companies to be taken public.
The company has yet to define the private companies it is going to go hunting for. The first company it finds will be the first it ‘reverses into’ and takes public. This should bring with it important assets and management expertise.
What will Net Zero Infrastructure be buying?
Net Zero Infrastructure cannot yet confirm whether it will acquire just one company or more. The value of the initial acquisition is expected to be in the region of £5m to £50m. The company is aiming to buy 100% of any acquisition, but an interest of less than 100% will be considered, provided that the company acquires a controlling interest.
It is important to stress that the cash shell will likely be buying a company that is much more valuable than Net Zero Infrastructure’s market value. Because of this it will likely be using ordinary shares as a material element of the consideration for the acquisition.
Following the closure of fossil fuel-burning power stations, it may be possible to build a new energy generation project in its place, which could take advantage of the previous power station’s connectivity to the National Grid. The Net Zero directors believe that there are opportunities to acquire former power stations and industrial plants, decommission them, and then repurpose the sites to provide companies with access to the supply network or to develop clean and renewable energy projects, either alone or in partnership with others.
Energy parks and hubs are one area of interest for the company. This can include existing infrastructure that could be adapted – e.g. to manage peak electricity demand more smoothly across the country.
Battery storage is also essential if the UK is going to expand its clean energy infrastructure effectively. Here we are talking about much larger batteries that can store power for larger institutions than just one household. Battery storage will become a very important part of the way we live our lives in the years to come and could also play a key role in driving stored energy back into the national grid.
Hydrogen fuel production could present yet another opportunity.
Interestingly Net Zero Infrastructure will also consider opportunities in the carbon capture space. This is still an area at a very early stage in its development but again, we see this as an important way to manage and slash carbon emissions. This is technology that can capture up to 90% of the CO2 released by burning fossil fuels, including in areas like cement production.
Listen: Podcast with Mike Ellwood, Chairman of Net Zero Infrastructure
The team behind Net Zero Infrastructure
Because a cash shell is just that – i.e. a listed company containing cash that is intended to be used to make future acquisitions, it is important to also consider the team that is behind the company.
In this case the board is being led by Mike Ellwood, a former banker who has a long track record in corporate finance, including being responsible for the establishment of Santander in the UK corporate banking market (where he had many clients in the renewable energy and infrastructure industry).
Ellwood is assisted on the board by Brian Basham, a former national newspaper journalist who has also worked as an advisor for several listed UK blue chip companies, among them British Airways, BAe Systems and Tesco.
Sector specific experience also comes from Alejandro Ciruelos who is a non-executive director of the company and a managing director with Sustainable Development Capital LLP, looking after renewable energy and power. He has over 15 years of experience behind him of raising and structuring investments in the infrastructure space. Formerly part of the executive leadership team at Santander Corporate & Investment Banking, he has also been called on as an expert witness by the UK Energy and Climate Change Committee.
What is already an experienced team is assisted by another non-executive director, James Wharton (Baron Wharton of Yarm), a UK peer and former Member of Parliament. He was the Northern Powerhouse Minister at the Department for Communities and Local Government. He brings with him his considerable knowledge of the workings of government, which will be essential as we see more government support for renewable infrastructure coming into play.
Infrastructure is going to be absolutely essential for the development of an effective net zero carbon economy in the future, there is no question of that. The timing of this new cash shell seems ideal to us as the UK prepares to host the COP 26 climate summit with Italy in November. Following the UK government’s announcements of its intention to make the UK a leader in green energy, we expect that this area of the UK’s energy industry is going to receive considerable support from the government to foster its growth as quickly as possible, from which companies in the sector will benefit considerably.