Heightened demand for renewable energy to lower costs and reduce carbon emissions is opening opportunities for ArcLight Capital Partners, managing director Marco Gatti told PE Hub.
Earlier in July, the Boston PE firm agreed to acquire part of Duke Energy’s commercial distributed energy business for $364 million. The assets include REC Solar and distributed fuel cell projects managed by Bloom Energy.
REC Solar installs, constructs and manages distributed solar for commercial, municipalities, hospitals and other large institutions.
“We think that demand is definitely going to grow. It’s already very healthy and will definitely grow in the future,” Gatti said about the rise of solar energy usage in commercial and other large institutions.
This is because some sectors that previously viewed renewable energy as too costly or unattainable for their businesses are changing their minds. “That is why we are interested in the sector, because there is room for growth and increasingly profitable growth,” Gatti added.
Over the years, new technology has been developed and more policy incentives have been issued in support of renewable energy. Recently, the federal government agreed to pour billions of dollars into the renewable energy sector through the Inflation Reduction Act of last year.
The ability to navigate some challenges within the renewables sector is something that is giving ArcLight the drive to acquire more. “That’s why we think that acquiring a company that has genuine skills, not only on contracting projects, but getting them into operation and operating them, is a distinctive feature.”
In terms of other opportunities, for example, Gatti said REC Solar has “a portfolio of super high quality customers” who include Fortune 500 companies. The business model is repeatable too, he said.
As more companies are focusing on decarbonizing, Gatti said business will continue to flourish as more customers sign in.
For growth, the ArcLight’s managing director said the business will assess both organic and inorganic strategies, sometimes targeting completed assets just like in this deal or even those still under construction.
“It was Duke’s preference to transact on both portfolios at once,” Gatti said. “We also see a lot of value in being a comprehensive provider of distributed energy solutions and ultimately, the customers tend to be very similar for our both portfolios.”
More customers are warming up to the renewables’ advantages of clean and “dependable” energy. In its over two decades of existence, ArcLight has completed many carve-outs that follow the same model as this current deal, Gatti said.
The strategy is to acquire assets and businesses out of large corporations, standing them up as independent companies and then positioning them in sectors that are high growth, he said.