Matthew Day in Warsaw -

It's perhaps testament to how far green energy has travelled along the road of credibility when an investment fund gets involved. Once the preserve of hippy, tree-hugging stereotypes, renewable energy now attracts serious money from serious men in suits, and in Central and Eastern Europe, many of the suits are worn by the people from EnerCap.

The Prague-based company became one the region's first investment funds to target the renewable energy sector when it opened for business in late 2007. With its €100m closed-end, 10-year EnerCap Power Fund, the firm plans to invest in a portfolio of renewable energy investments across CEE, including wind, biomass, solar and projects generating carbon credits.

"Globally, you will need an awful lot of fingers and toes to count the funds concentrating on renewable energy, and there are funds in Western Europe that look at the odd country in Central Europe, but I think we are the first fund to focus solely on the region," says EnerCap partner Shane Woodroffe, a softly-spoken Australian who joined the company from Fortis Bank in November last year.

Woodroffe, who says that the fund already has a sweep of projects in the pipeline, explains that the reason the fund decided to concentrate on the former communist bloc has more to do with the location of the fund's founders than anything else. With all of them living in Prague, he says, they know the regional market, how to operate and, crucially, the opportunities available.

And few would quibble that the region offers potential. Along with goals outlined in the Kyoto protocol, the EU has ruled that by 2020 20% of the bloc's energy should come from renewable sources, and with interim targets also in the offing, governments and the power sector across the region have to put legislation, money and resources into developing green electricity. Along with this, the ever-growing and now omnipresent concerns over oil prices have added their own momentum to the renewable energy cause, and, as Woodroffe explains, green energy sources, like wind – which accounts for most of EnerCaps' work at the moment – have a simple appeal that is hard to ignore.

"At the end of the day renewable energy, such as wind, is free," he says. "It's a domestic resource; you don't have to rely on other countries or your neighbours. It's never going to be our sole source of energy, but the right amount in the right places will make it a valuable resource.

"And it's not as if we are going to be using less power," he continues. "GDP and population growth, people buying more electrical goods: all these factors mean that people are going to be needing more electricity. Plus in Europe there are a lot of old assets out there that need replacing."

All this, EnerCap estimates, means that the region's renewable energy sector will need €10bn in investment by 2010, and much more after that. But despite clear attractions, the sector also comes with obstacles for investors like EnerCap.

Regulatory risks

To begin with, politicians have for long treated renewable energy as a political football and their commitment to it has often fallen short of unwavering. Even the EU's 2020 targets may fail to install the required dedication in politicians, and this increases the possibility of them tinkering with the complicated framework of support regimes that characterises the renewable energy sector. Woodroffe explains that regulatory risk is one factor that has to be assessed before making an investment.

Related to this is the headache caused by each country in the region having its own support regime. Woodroffe admits that "you just have to get your head around" the mixed bag of regimes ranging from green certificates in Poland, to feed-in tariffs in Slovakia and just about everything else in between. While support regimes are unique to the renewable energy sector, EnerCap and its peers, share the same problem as other investors in the region in having to deal with its diverse range of currencies.

"To me as a euro investor, it is something that I just have to manage," says Woodroffe. "If I was Polish investor, I would invest in zloty and get paid in zloty forever. We are a fund where our investors use euro. We have to use hedging and it's something we have to do in half a dozen countries."

As with many investors, EnerCap also has to find a buyer. Being a closed-end, 10-year fund it needs an exit strategy, but once again, Woodroffe says, the fact that they invest in the essential commodity of energy should make their portfolio attractive. "Energy is basic infrastructure and is something that you are going to need," he explains. "The only really challenge is that you have some completely new technology come in from outside that makes every current asset redundant, but we don't think that is going to happen."

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