Renewable Energy Private Equity Firms

Renewable Energy Private Equity Firms – [Editor’s note: A version of this story appears in the March 2021 issue of Oil and Gas Investor magazine. Subscribe to the magazine here.]

Energy-focused private equity funds are always looking for another way to get home. In addition to shale plays, digitization or mergers and acquisitions, many private scouts today are looking for alternative energy options, and this means much more than supporting gas producers to supply the power plant.

Renewable Energy Private Equity Firms

“There will always be new energy technologies for oil and gas, and there are opportunities for energy transformation. So I don’t see it as an either-or,” said Phil Deutsch, managing partner of NGP Energy Technology Partners III.

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Their move towards a greener portfolio is driven by several factors. Last year, as the Biden presidency emerged and the energy transition became a topic of conversation, public and private investors increasingly turned to renewable energy sources (solar, wind, biogas) or energy transition ideas (electric vehicles [EV], batteries, distributed electricity generation).

As these private equity fund managers looked to the public markets for guidance, traffic lights were flashing green at large. Refinitiv’s Global Renewable Energy Equipment and Services Index rose more than 200% last year; The WilderHill Clean Energy Index (ECO) is up 300% in 2020, excluding Tesla shares, which are up a whopping 700% in 2020.

But the public market has gotten too frothy, which could be a yellow warning sign: The IShares Global Clean Energy ETF (ICLN) recently saw an inflow of $990 million in one week. EnPhase Energy Inc., the solar maker that will join the S&P 500 in January 2021, at one point traded at nearly 80 times EBITDA, so it was clearly “priced to perfection,” Raymond James analyst Pavel Molchanov said in a renewables report . springs.

Commenting recently on Plug Power Inc., Simmons Energy analyst Piers Hammond said, “At some point we should see some convergence between the thematic pressure of the seed sector and valuation realism in terms of credible estimated normalized earnings.”

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Whether valuations are realistic or not in today’s hot climate, many of the largest private energy firms believe in an “all of the above” approach, investing in alternatives over several years, usually led by a dedicated in-house production team. using dedicated capital that is separate from their oil and gas holdings.

At press time, EIG Global Energy Partners’ new energy transition fund was nearing the $1 billion mark, and EnCap Investments LP’s new transition effort topped $1 billion. Apollo Global Management’s special acquisitions corporation (SPAC) was set to merge with the solar company in a $1.3 billion deal. Riverstone Holdings, which has been investing in low-carbon ideas for 15 years, recently joined a $50 million Series C financing for FreeWire Technologies, an electric car charging company, along with bp investments and other investors.

There are many other examples. EnCap Investments LP, NGP Energy Capital Management, Quantum Energy Partners, Arc-Light Energy Capital and many others have added green business verticals to their traditional oil and gas portfolios. GEC Energy and White Deer Energy have said investing in green technology will be their main or sole strategy from now on, shedding E&P. GEC IV was expected to start raising funds again sometime this year for the company’s fourth fund.

“It’s clear that the energy industry is undergoing a transformation, and that’s creating new challenges,” said Mark McCall, managing director of Lime Rock New Energy LP. “We are looking for companies that solve these challenges.

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It was founded in July 2019 and has already closed about $100 million of its $600 million goal. Its first two commitments were made in the fourth quarter of 2019 to Smart Wires, a grid upgrade company, for $75 million, and Qmerit, a national provider of installation, maintenance and repair of residential and light commercial electric vehicle charging equipment.

“Renewables have been around for a while, but now it’s a hockey stick,” said Sean Cumberland, managing partner at EnCap Energy Transition. “EnCap is a proven energy investment manager with over 32 years of success. It was wise for EnCap to respond to the market by expanding its mandate to include an energy transition platform.”

Along with the existing upstream and midstream portfolios, EnCap has created a third portfolio focused on low-carbon opportunities. The company is already the largest financial equity investor in battery storage (in operation or under construction) in the entire financial sector, he said.

Energy-savvy private equity players see renewables as the next big vertical to complement, not replace, their oil and gas businesses.

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Although EnCap Investments now invests from the upstream of Fund XI and its midstream vehicle, EnCap Flatrock, is the midstream of Fund IV, to enter the green space the firm has brought in a new team with deep strength and experience in renewables to lead its third investment vertical. The company is in the midst of raising a new energy transition fund of up to $1.5 billion, according to SEC filings. In order to go green, the company created an internal “skunk works” team that deals with energy transition options.

“It was clear it was going to explode. “The amount of capital that will be committed to the global energy transformation will be in the trillions,” EnCap’s Cumberland said. “As long as there are opportunities for renewables, we’ll be in it for the long haul.”

“Look at the economic margin in the energy value chain wherever it is because a lot of it is changing,” said Sean O’Donnell, a partner who oversees energy transitions for Quantum Energy Partners.

In 2019, EnCap Investments approached the Prisma Energy team to go green, which already supported distributed solar power for residential use, among several other alternative energy topics. Each of the four partners in EnCap Energy Transition has at least 25 or 30 years of experience in the energy sector and brings those skills and contacts to the new team, including Jim Hughes, who was CEO of First Solar and Prisma Energy, among others. . underlines.

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“The courtship was pretty quick,” Cumberland told Oil and Gas Investor. “The way we both look at risk management and value creation is similar.”

EnCap’s current investments include two transactions completed in 2020, Triple Oak Power LLC and Solar Proponent LLC, as well as four completed in 2019, which include Broad Reach Power, Catalyze and Jupiter Power. They are involved in solar, battery and wind farms. It increased its commitments to Broad Reach, Jupiter and Catalyze as capabilities expanded beyond original expectations, Cumberland said.

More recently, traditional upstream or midstream private equity firms have also entered the energy transformation space by sponsoring SPACs dedicated to renewable energy opportunities to mitigate or reduce greenhouse gas (GHG) emissions. and add another vertical to its E&P portfolio.

For example, Carnelian Energy Capital Management still invests in both sides of the energy coin. In June 2020, it funded Hawthorne Energy LLC, a new E&P run by former executives from Three Rivers Operating. But then, in September, his alternative energy SPAC focused on reducing greenhouse gases, Peridot Acquisition Corp., went public and raised $300 million in gross.

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An SEC filing described Peridot as follows: “While our target set of opportunities covers a wide range of business profiles, we have identified several specific sectors to focus on, including electrification, clean fuel transportation, self-driving and autonomous mobility and related infrastructure, energy storage and efficiency , smart grid technology, renewable energy, biofuel and synthetic fuel management, waste and water reuse and recycling and related environmental infrastructure, air emissions and carbon capture, utilization and storage’.

Pearl Energy Investment II LP announced Spring Valley Acquisition Corp. on the Nasdaq in November and raised $230 million for topics related to sustainability, clean energy and water. Last year, he took his business up a notch by committing to AVAD Energy Partners II and Eagle Mountain Energy Partners; both deals were done in conjunction with NGP.

NGP sponsored two SPACs called Switchback, the second of which raised $316 million in January. Both will focus on energy transition opportunities.

“All aspects of the energy complex need better software to achieve their goals of greater safety, greater efficiency and greater profitability,” said Patrick T. Yip, CEO of GEC.

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Don’t worry, as private equity funds’ interest in oil and gas hasn’t gone away, even as investments in green energy gain momentum. One does not exclude the other; although the sources admit that the weak oil and gas revenues they are generating will certainly encourage further investment in new alternative ideas. Many credible forecasts indicate that global oil demand will continue to grow in the coming years. Moreover, every private equity investor The Investor spoke with said that oil and gas and alternative energy can and should coexist.

“We strongly believe that economic fundamentals are driving it; it’s not just regulatory pressure,” said Lime Rock’s McCall. “Our view is that the energy transition will take decades. We see the energy transition as a good area for investment, but we also believe that fossil fuels will be around for a long time. And none

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