Warburg Pincus rides on scalability of renewable natural gas in Viridi Energy deal

“We will be using natural gas for a long time, and understanding the most capital-efficient ways to reduce our carbon footprint is really important,” Warburg Pincus's Jeffrey Luse said.

Warburg Pincus, a New York based private equity firm, recently invested $320 million into Viridi Energy, a New York-based renewable natural gas platform, to scale up decarbonization efforts under its thesis.

PE Hub caught up with the firm’s principal, Jeffrey Luse – who focuses on energy investments – to hear more about the deal and how Warburg Pincus plans to grow the platform.

Renewable natural gas is produced from a wide range of sources that include municipal solid waste landfills, digesters at water resource recovery facilities, livestock farms, food production facilities and organic waste management operations, among others.

Renewable natural gas has been an attractive form of investment to a wide range of fund managers and industry experts, including big energy companies looking to decarbonize their operations. There were 174 renewable natural gas projects in 2021 in the US as compared to a paltry 13 in 2005, statistics from the Environmental Protection Agency shows.

Viridi Energy is being led by Andy Kelleher, its chief executive, and other industry professionals who have spent decades working in the energy sector. “We have a thesis of backing management teams that have tremendous experience in a particular sector or an expertise that we cannot bring as private equity investors,” said Luse. “In this particular instance, the management team that we are backing are pioneers in the renewable natural gas space.”

As part of its interests in renewable natural gas, Warburg Pincus has been meeting groups of people around the space and finally got impressed by Viridi Energy executives who “were excited about doing this with an entrepreneurial feel” and eager to start a platform from scratch.

Increased renewable natural gas investments come at a time where there is uncertainty around energy supply across the world, mainly due to the geopolitical conflicts coming out of Russia’s war in Ukraine that forced many countries to ditch or scale down reliance on Russia’s fossil fuels.

Also, financing of traditional energy by PE firms tanked over the years in part due to ESG concerns and the desire to cut out polluting sources. This, according to Luse, created an opportunity to deploy substantial capital to build platforms of scale focusing on renewable energy, such as Viridi Energy.

But even though the renewable natural gas space is attractive, it is also crowded and demands robust business models to succeed, Luse said, adding that the PE approach of being patient investors can go a long way in developing the sector.

“We will be using natural gas for a long time, and understanding the most capital-efficient ways to reduce our carbon footprint is really important,” he said. “Renewable natural gas is proving to be one of the best methods to do that.”

He said Viridi Energy will explore both organic and inorganic models to grow the platform. Judging by the growth that the industry has experienced over the years, Luse said there is an opportunity for all players involved to take a meaningful share within the next decade.

“This is not going to be a winner-take-all market; we do think there is absolutely room for multiple players to really share,” Luse said.