Singapore’s Swiss-Asia Financial Services plans to raise 500 million euros ($861.6 million) for a private equity fund that will invest in combined heat and power plants in China, riding on the country’s efforts to promote clean energy.

The China District Energy Fund, which has gathered US$115 million ($147.3 million) in commitments, will invest in electricity plants that also generate and sell heat to end-users, providing a second source of revenue.

Dalkia, a joint venture between French companies Veolia (VIE.PA) and EDF (EDF.PA), will help Swiss-Asia identify promising projects and operate most of the assets. The French energy firm has also committed to investing 75 million euros in the fund.

 

“It’s the paradox of China. It is the country that pollutes the most, but it is also the country that invests the most in clean energy,” Swiss-Asia’s founder and CEO Olivier Mivelaz told Reuters in an interview.  

 

“(China’s) growing energy demand places considerable pressure on the existing energy infrastructure, creating opportunities for energy efficiency projects with environmental benefits,” he added.  

 

Mivelaz said the fund is targeting a net internal rate of return of 18%, excluding the possible upside from a rise in the value of the yuan against the euro or dollar over the life of the fund.

 

Combined heat and power plants are more energy efficient than conventional power plants as the heat produced can be tapped and sold to industrial users and homes that require heating.  

 

According to presentation notes seen by Reuters, the fund’s initial investment will be in a plant located in Dayi Industrial Park in Chengdu in western China, which has exclusive rights to supply steam to the park’s tenants.

 

The fund is also in discussions to invest in a plant in Chongqing operated by Dalkia that is in the process of being upgraded.

 

Swiss-Asia, which was established in 2004, currently manages or advises on about US$1 billion in investments. Besides the planned District Energy private equity fund, it also manages a fund of hedge funds called Genghis and an Indian equities fund.

 

Prior to setting up Swiss-Asia, Mivelaz was managing director and a board member of BCVI, a unit of Switzerland’s Banque Cantonale Vaudoise, from 1994 to 2004.