Private Equity Targets Renewable Energy Investment – Survey – 08/06/2010

LONDON (Dow Jones)–Private equity firms are preparing for a surge of investment in renewable energy, with on-shore wind farms the number-one target, according to research released Friday.

More than three-quarters of private equity executives polled at a recent conference by KPMG said they planned to invest in renewable energy of some sort within the next year, with on-shore wind being the most popular technology, followed by off-shore wind and energy from waste.

Renewable energy projects and assets promise huge returns because of the long-term predictable cash flow guaranteed by an increasing focus by governments worldwide on the sector, making business easier for renewable energy facilities.

Like infrastructure assets, they have different risk and return profiles depending on the stage invested in and there is no such thing as easy money.

“Private equity houses weighing up investments in the sector need to get comfortable with the large amount of capital required up front to fund renewable projects,” said Adrian Scholtz, energy director at KPMG.

“Renewable assets which are already operational do not come with a heavy cash burden but they do not deliver the kind of returns private equity demands,” he added.

Many buyout firms are already active in the sector. London-based HgCapital raised a fund dedicated to renewable energy three years ago and in February it announced three investments in wind and solar power projects totaling EUR300 million.

U.S. buyout firm First Reserve Corp.–which focuses on energy–has just made its first substantial infrastructure commitment to support renewable energy projects through a joint venture totaling up to $1.5 billion, with solar developer SunEdison, a division of MEMC Electronic Materials Inc. (WFR). First Reserve said it plans more investment in renewables.

The trigger for the increased interest is public money and support being made available for alternative energy technology and facilities. Alaska’s governor Wednesday signed two bills into law aimed at encouraging greater development of renewable energy including one law that exempts wind, solar and other renewable-energy facilities from having to comply with regulations that other wholesale power producers must adhere to.

Meanwhile the U.K. aims to cut emissions and increase the amount of renewable energy in the mix to 15% by 2020 from around 2% now spurring companies to invest billions in low-carbon electricity generation, such as nuclear power, offshore wind and clean coal.

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