Istg every post I see for a PE role that I get excited about on LinkedIn, I click on it then read the description and it's for renewables developers / infra investors. I thought that was supposed to be small and nichey? I was told Tech is where all the PE exits are at? Da faq?
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It's all about the energy policy support in the US and in the UK.
I mean the energy sector underlies every basic industry in the world and people are saying it needs to be fully flipped on it's head by 2050. That's an opportunity if I have ever seen one.
Feels risky given the limited upside on Infra returns. Best case scenario you're looking at a pretty modest (even by real asset standards) return. Worst case scenario you buy billions of renewables infrastructure only to realize 20 years from now the future of clean energy isn't in wind turbines and hydro-dams and you've spent billions on something that seemed futuristic in the past but has no place in the present or future. Like going all in on flying car infrastructure back in the 1930s.
What are you talking about dude how is that risky? The whole system is being revamped to combat global warming. Serious opportunity that is essentially guaranteed
Not sure if sarcasm. That's kinda my point. What if, as we're revamping the system in real time, we create more efficient green energy generation systems, methods and infrastructure than what we already have. But it's not like investing in a manufacturer of mobile phones where they simply revamp the product line each year to incorporate the new tech into their new offerings. Way to expensive to do that in renewables you just end up with a decrepit asset like all the vacant 50s-90s vintage office product in NYC.
This still makes no sense. There is so much money flowing into the space and that will only continue. That isn’t going to stop because of some weird inherent risk thing you’re talking about. Govts are going to spend what they have to to reach or approach milestones for reduced global warming
Is there some other future of clean energy you’re saying? How many years away is that? Couldn’t you say there’s some better alternative when making any investment?
100% but Infra isn't a business model where you can easily just update your product line & inventory each year to stay current. You are largely stuck with the asset you purchased, which is where I'd be worried. Conversion plays typically only pencil for the NEXT guy who takes over your decrepit asset at a flashsale / foreclosure price but not for you the seller.
Short example - 5G infrastructure gets rolled out. Companies like Apple, Samsung, etc. simply make a really small tweak to their software and boom, their phones are now 5G, great. Same with most OEMs. You make new product and secure more inventory every day, not a big deal to update products & inventory going forward. The analogy I would use is more akin to Big Box Department Retail real estate or Office real estate. The problem is if the market changes underneath you, you are stuck with a huge, bulky, expensive non-cash generating asset with no easy way out. Can't simply make one small tweak to your wind farm's software and bring it in line with whatever the new most efficient renewable asset is.
Yet still, this does apply to other industries. What makes Renewable Infra the most damning to me is that even if all of these risks end up being totally negligible and the bull case scenario comes to fruition, you're looking at what, a 7.0% net levered yield?
Yeah I forgot about that time everyone stopped using electricity and all of the infra guys went under
I think you have a good point but are also over simplifying the process of transition.
Even if there are new technology down the road, it's gonna take time and resources to reiterate and ramp up , much like how the current renewables play are nowhere near replacing all traditional power plants (including gas-fired ones) in the short to medium term, not in terms of both capacity and reliability.
I think for us , with a 20-40 years career span it will be okay, the bigger issue one should concern on a personal basis is this sector (and traditional infra) is boring as fuck due to some of the points you described (low returns, limited options to switch and strategize over the investment horizon etc.)
Does this apply to cleantech?
Where are you sourcing these discount rates? This is blatantly false except for maybe a pension fund buying into a turnkey asset; at that point, you're half a step away from buying bonds; of course the discount rate is low at that step of the value chain.
Did you just....compare renewables deals to....bonds?
Yes, acquiring operating, fully contracted renewables projects is compared to fixed income thanks to the stable, predictable nature of the cash flows. This is why late stage renewables investors have cheap costs of capital.
I get that you’re pretty green, but you should really pause and think before making sarcastic comments to professionals that know much more than you do.
Because what happens, 10 years from now after financing, constructing, and eventually operating, let's say, a massive green hydrogen facility, we figure out cold fusion and renders that entire industry (much less a single project) completely moot and drives NPV to zero / negative value territory.
Thinking "how can renewables be a bad investment? they're the future!" is exactly what OP is talking about - it completely oversimplifies an insanely complex industry and regulatory landscape and completely ignores any-and-all details regarding both execution and future returns. It's just lazy reasoning.
I don't think you know what you're talking about - it sounds like you've seen a few infrastructure models with offtakes or dev fees solved to ridiculously competitive levered returns, and are using this as a proxy to explain why renewables has limited upside in returns.
Taking the development risk to originate projects in attractive markets can result in extremely attractive risk adjusted returns right. The potential optimizations / upsides for tax credit adders outlined in the IRA, the willingness of many corporates and utilities to sign above market offtakes due to their own resource constraints, and the large universe of low cost of capital investors looking to purchase de-risked projects creates boundless opportunity.
Almost every ISO / RTO in the US is suffering from declining resource adequacy due to increasing load, thermal retirements (economic and policy driven in nature), and backed up interconnection queues. These gaps in supply and reliability are only exasperating by permitting challenges, near term supply chain constraints, over saturated and delayed interconnection queues, etc. These all create significant market opportunity for early movers given the inherent value of their development projects.
You also don't seem to understand that the fundamental value of these projects is not just in the technology - even as they are decommissioned, they still have these EXTREMELEY valuable interconnection rights that are only getting more expensive and logistically difficult due to our own antiquated transmission. The projects are also usually derisked through long term offtakes, so even as the cost curve declines or a superior technology emerges, you are still pretty derisked.;
Additionally, things like the ability to sell-down tax credits (although not economically efficient) will open up the market to alternative capital structures that aren't limited by available tax liabilities from large investment banks, creating more nimbleness in getting projects financed and operating.
The above are just a few quick examples of why you're wrong. If you had done more than 20 minutes of research on the subject, you would have captured at least 2 of them; I'd caution you against speaking with authority on a subject you don't understand.
Tax credits and subsidies
yup. demand for tax equity is huge right now. The Inflation Reduction Act also included a lot of guidance regarding tax credit transferability.
These are the correct answers^^
IRA is an ungodly ‘put your money where your mouth is moment’ in the whole ‘energy transition’. Not sure people appreciate the sheer quantity of incentives IRA put in place.
Renewables is really counter-cyclical because the returns suck in bull markets too
-O&G Boi
This is classic O&G. Why go for 20%+ IRR. When you can always sleep, nice and tight, with a safe levered 6%
Ask Enron, they'll tell ya why! Lol just playin.
Like why do you think dude. Tech is in the shitter and renewables are taking off (global warming ring a bell?) Billions of dollars in guaranteed investment going their way.
Joe Biden
Tons of catalysts like the passage of IRA, support from legislative bodies especially in Europe in the form of TTC and carbon credits, encompassing in the forms of DEI & non financial metrics
Bunch of garbage “startups” in renewables that don’t have a purpose or vision.
I’ve lost track of how many teams have “raised capital” that amounts to less than 3 years of G&A spend.
typical infra PE / sponsor seat count haven’t grown as much as you’d think - more of expansion into credit / lending and asset level teams
Because the US Gov't is supporting this stuff and they can in a single day throw more money at something than half of wall street can in a year
Energy is insane right now.
(1) This is likely a selection bias thing.
(2) Infra is "small" and "niche.'
buyout mkt has been dead for 3 years while renewables and data center financing has been gangbusters. decent place to hang out for the next few years but so incredibly niche that i struggle to see a logical pivot away from a project finance/infra type seat.
Because the tax money propping the entire industry up is about to go away for at least 4 years
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