Remember, we recently posted a blog about Terra Firma, the owner of Everpower- the company hoping to develop a BigWind industrial facility in Ohio. How could this affect the future of this facility for Ohio? How could this affect the tax promises to the counties? the leaseholders? the farmland?….
Private equity houses are retreating from the much-hyped renewable energy sector in the wake of a swath of lossmaking investments.
About 87 per cent of renewables-focused private equity funds have generated returns below that of the median private equity fund to date, with vehicles managed by HgCapital, Impax, InfraRed, BlackRock and Foresight all currently under water, according to figures from Preqin, the data provider.
Sector-wide returns have been so poor that few of the large energy-focused US private equity houses that have launched dedicated renewables funds to date are expected to offer follow-up funds….
“Just 22 per cent of funds have an IRR [internal rate of return] over 3 per cent. To me 3 per cent is losing money because you have a cost of capital. Just looking at the numbers, it does not really stack up in the private equity world,” he said.
“From my experience, you would look at many projects and only a few of them would be economically viable.”…
Joseph Dear, chief investment officer of Calpers, the world’s sixth-largest pension fund, last year described clean-tech investment as a “noble way to lose money”, with Calpers having suffered annualised losses of 9.7 per cent in the sector.
“We are all familiar with the J-curve in private equity. Well, for Calpers, clean-tech investing has got an L-curve for ‘lose’,” added Mr Dear. “If it takes 12 years to get the money out, the internal rate of return is not going to be very good, even if the investment is reasonably successful.”
Plans by Guy Hands’ Terra Firma house to launch a $2bn renewables fund were thrown into doubt last week when Damian Darragh, the star dealmaker in charge of raising the fund, was sacked.
A senior figure at one private equity house with a renewable energy fund, who declined to be named, said venture capital-style clean-tech investments, such as making electric vehicles or solar panels, had “done horribly”, but argued that biomass, solar or wind farm operations themselves had provided a “decent, respectable return”, with institutional investors such as pension funds keen to buy sites when they are up and running.
Jay Yoder, head of real assets investment at Altius, described renewable energy investing as a “trendy fad” that was overly reliant on government promises of tax credits and subsidies, which have been broken in countries such as Spain.
“We are constantly warning investors about renewable energy. One is investing more in political decisions than in tangible assets,” he said.
“Unfortunately, when the inevitable, and considerably higher, bill comes due, constituents start complaining and politicians start breaking their promises and reneging on their contracts.”
February 16, 2014 3:14 am Private equity retreats from renewables ‘fad’ By Steve Johnson