Octopus Investments' power play and why it's building a billion dollar battery

This interview was filmed 1 May 2024.

Fund Profile

• Name of the fund: Octopus Australia Sustainable Investments (OASIS) 
• Asset Class: Renewables
• Description of strategy: OASIS’s objective is to lead investment into Australia’s transition towards a renewable energy future. The fund’s core strategy is focused on building a diverse, multi-state, multi-technology portfolio of Australian renewable energy assets. OASIS invests in utility scale renewable energy assets in development, construction and those that are fully operational. 
  
• Investment objective: Revenue for the portfolio is generated through a mixture of the sale of energy via long-term/fixed price contracts (“Power Purchase Agreements”) and wholesale energy trading. The fund targets a net IRR of 10-12% p.a. (pre-tax) and bi-annual distributions.
• Link to fund page

Batteries not included

If you have ever wondered why battery manufacturers are building hyperscale production facilities like Tesla’s gigafactories, I have some insights for you.

In a recent conversation with Sam Reynolds, CEO of renewable-energy-focused Octopus Investments Australia, I learned that one of Octopus’ latest projects involves the development of battery storage facilities.

The estimated cost of the project? About $1 billion. That’s a big battery.

Battery storage is just one piece of the renewable energy puzzle, however. Octopus also has interests in multiple wind and solar farms at various stages of development, construction, and operation, across the country.

Energy Tetris

Given the size and scale of these projects, which run into the billions of dollars, one might think that they are simply judged on their individual merits. But that’s not the case. Rather, the massive pieces are connected - like a giant game of Energy Tetris. As Reynolds explains;  

“We want our portfolio to look like the future of energy in Australia”.

To do that, the Octopus team relies heavily on data gathered internally as they continue to build their asset base, as well as external data.

That data helps the Octopus investment and origination teams understand demand, how different weather patterns affect that demand, the effects of retiring coal plants, and how best to fulfil those needs with the appropriate asset mix. 

“All that data goes into how we select those assets in our portfolio”, adds Reynolds.

Furthermore, the data also helps Octopus sell the final product – the electricity that is generated.

“All of our assets have a 60-70% fixed price contract, so that you are underpinning the revenues for a long time - usually 10 to 15 years”, says Reynolds.

“And that team helps with structuring and pricing those revenues to ensure the returns that we're promising investors as stable as they can be."

Like any other infrastructure asset

This last comment from Reynolds about selling the output really got me thinking during the interview. It occurred to me that while Octopus invests in and builds assets focused on the production of renewable energy, they are really infrastructure assets at heart – toll roads sprang to mind.

Toll road operators raise capital, build an asset, and then are paid to operate and maintain the roads for extended periods. It’s a similar setup here: Octopus raises capital, builds the energy-producing assets, and then gets paid for the maintenance of, and production generated by, those assets.

It just so happens that the assets Octopus builds are good for the planet as well, but that’s not what Reynolds leans on. 

When discussing investments in the fund from large institutions, such as Rest, Hostplus, and the government-owned Clean Energy Finance Corporation, he says: 

“We want them to look at it and put it alongside other infrastructure. We don't want them to sacrifice returns for the green angle or for net zero”.  

Watch the video

Access the future of Australia's energy

OASIS is an open-ended unregistered wholesale Australian unit trust, focusing on providing investors with exposure to a diversified portfolio of Australian clean energy infrastructure assets through its investment in development, construction and operational renewable energy projects. For more information, visit the Octopus website, or the fund profile below. 

Managed Fund

Octopus Australia Sustainable Investments (OASIS)

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