Vast opportunities created by the rising demand for renewable energy limits the impact of the tight macro-economy for investors, according to Alex Darden, partner and head of EQT Partners’s US Infrastructure platform that recently invested in Madison Energy Investments (MEI), a developer of distributed generation assets.
EQT, the Stockholm-headquartered PE firm with offices worldwide, including in New York, acquired MEI, a Virginia-based owner and operator of distributed solar and energy storage projects, from Stonepeak Partners in late December.
MEI was founded in 2019 and has since inception built a portfolio of more than 386MW across the US.
EQT’s investment comes at a time when there are growing fears of a recession that could affect the rate of operation for renewable projects and slow the pace at which other projects can be brought online.
Darden said that even though there is need for significant capital for renewable investments, “there will be limited impact” because the demand for such investments goes beyond the current economic malaise.
The EQT partner said opportunities within the energy transition are rooted in the US’s desire to wean its grid from traditional energy sources such as coal, which besides being one of the biggest sources of energy, is one of the highest emitters of carbon dioxide.
With rising demand for gas driving electricity prices up, Darden said “the economics for distributed generation solar and storage are becoming more favorable.”
Another opportunity for solar lays in its capacity to add certainty to the supply of energy, Darden said. There are also very strong corporate sustainability commitments that are being made across the US and North America in favor of renewable energy, a factor that is driving EQT’s appetite to invest in the sector.
But over the years, PE’s appetite to invest in renewable assets has been on the rise. But Darden doesn’t feel like the space is getting oversubscribed. “I wouldn’t characterize it as a gold rush,” he remarked in relation to the growing list of investors that are picking up opportunities in the sector, adding that “I would characterize it as an incredible investment opportunity that is driven by fundamental demand.”
That demand is powered on both the private and public policy sides. For the private side, Darden said there is growing recognition of the need to have more clean sources of energy from the sustainability point of view.
On the public side, the US government has taken giant steps towards supporting renewable energy with two pieces of legislation signed in 2021 – the Bipartisan Infrastructure Law and the Inflation Reduction Act (IRA) of 2022 – which are adding more tailwinds to the sector.
“I think from a regulatory standpoint, the IRA has a real opportunity to change the direction of the industry,” he said, citing a range of incentives offered under the Act.
However, some challenges for the renewables space could come from the fact that most of the components are sourced offshore.
“It’s incumbent on individual companies to make sure that they are thinking ahead and that they are managing their supply chain in order not to get delayed,” Darden said, adding, “but it will be a challenge on a go-forward basis for the next couple of years as we build out US domestic supply.”
In terms of growth, the EQT partner sees more opportunities on the energy storage front. The firm said its infrastructure arm will support the MEI management team and platform by providing access to growth capital to accelerate the deployment of distributed solar and storage assets.
The firm is also offering its in-house digital expertise to further digitize MEI to expand its reach across a broader customer base.
Among its strengths, EQT is banking on a “very strong governance model” that places “valuable” people in both management and on the board, as well as on executing the business model in a manner that allows the company to future-proof itself in both sustainability and cost-structure.