Macquarie’s $325m fertilizer play sets ag within energy transition

Green Investment Group Americas head William Demas says infrastructure LPs are being drawn into corners of ag offering investment characteristics similar to transportation, logistics or power deals.

Macquarie Asset Management’s October investment into Swiss green nitrogen company Atlas Agro was prompted by an ongoing revaluation of what constitutes an infrastructure asset.

The asset manager, which has substantial infrastructure and agriculture portfolios, deployed capital from its GIG Energy Transition Solutions Fund – which has a $2 billion target that is expected to be reached in Q1 2024 – to make the $325 million investment.

William Demas, the head of Macquarie’s green investments in the Americas, told Agri Investor the MGETS vehicle’s focus on nascent areas of the energy transition beyond wind and solar reflects an ongoing re-examination among investors of what constitutes “infrastructure.”

“Infrastructure investors are interested in some ag-type deals because if those underlying deals have the characteristics that we are used to in in transportation, logistics, power or digitalization then we can very comfortably invest,” said Demas, who held positions at Copenhagen Infrastructure Partners and Stonepeak before joining Macquarie in mid-2022, according to his LinkedIn profile. “That is beginning to come together and that is what is attracting infra LPs into the sector.”

Atlas Agro is currently in the engineering and design stage for its first project, which is to be located in Richard, Washington and support production of fertilizers used throughout the Pacific Northwest region. The facility has attracted support from the US Departments of Energy and Agriculture and Atas Agro says it marks the first step in a “new green revolution in agriculture” driven by localized production of fertilizer from green hydrogen rather than natural gas.

Macquarie had $4.3 billion in ag assets under management per its most recent annual report published in May. Those assets are largely focused on real asset land holdings in Australia and Brazil and the firm also invests in agricultural land for carbon offsets through another unit of its Green Investment Group, according to Demas. He said while his team from the energy transition fund has examined agriculture in the context of other opportunities related to indoor vertical farming, the circular economy and on-farm power use, Atlas Agro marks its first ag-related investment.

“In an industry like agriculture – which is impossible to decarbonize just being powered by solar or clean energy – you have to really find product that’s decarbonized,” he said. “Ultimately, we are selling this end product to farmers, to distributors all sorts of people involved in the agricultural universe.” 

Atlas Agro was established in 2021 by a pair of executives with long histories in the fertilizer industry. Its plans call for a network of facilities capable of producing zero-carbon nitrate fertilizer through a process that uses air, water, electricity, limestone or dolomite. The plants will produce green hydrogen through electrolysis of water that is then transformed into ammonia, nitric acid and ammonium nitrate used to create liquid ammonium nitrate.

“Unlike many other players in the industry, we are not burdened with the need to manage the consequences of existing polluting assets or the costs associated with retiring unprofitable facilities,” the company says on its website.

It claims each of its planned facilities will be capable of producing enough fertilizer to feed 16 million people and reduce global greenhouse emissions by two million tons per year. In addition to the environmental benefits of replacing traditional fertilizers, Atlas describes its offerings as providing farmers with higher crop yields and quality as well as “potential for green crop premiums.”

Strategically relevant

Atlas Agro’s Washington project is expected to be producing inputs available to farmers by 2027 and cost about $1 billion to create what Macquarie calls the world’s first full-scale, zero-carbon nitrogen plant.

At least part of that funding for that project will come from the US Department of Energy, which announced in October that the Pacific Green Fertilizer project had been selected as part of its Regional Clean Hydrogen Hubs Program. The program was created by the 2021 Bipartisan Infrastructure Law and includes plans to deploy up to $7 billion in support for construction of up to 10 clean hydrogen hubs throughout the US.

Demas said Macquarie had already identified green hydrogen as a focus before its inclusion with the Inflation Reduction Act, but tax credit programs included within the legislation have helped further strengthen conditions in the market.

“The Inflation Reduction Act actually made the economics of a project like Atlas Agro work, whereas we thought it was going to be a period of time before those numbers would work,” he explained.

Atlas Agro’s Washington facility was also included among those that received some portion of $250 million in support for domestic production of green fertilizers from the US Department of Agriculture in the immediate aftermath of Russia’s invasion of Ukraine.

There is strong interest in green hydrogen derived fertilizers among large strategic investors, Demas said, adding that part of what made the Atlas Agro investment attractive was the likelihood of bringing in additional long-term support for some or all of the company’s projects.

“Once we have commercialized this product and proven we can build these facilities at scale and proven we can catalyze infrastructure-like capital to support the build-out, this will be very attractive to large fertilizer businesses and other agriculture businesses that want to participate in the decarbonization journey,” he said. “They are promising that to their shareholders, that they are going to reduce their carbon footprint over time.”

Demas said other infrastructure investors that recognize the underlying investment profile is aligned with how they think about investing their clients’ capital are also likely to be attracted to the green hydrogen-derived fertilizer market.

“In three, four, five, six, seven years, there will be a very wide audience that this could potentially be an exit opportunity for,” he predicted.