NEW YORK: Private equity firms face a sober reckoning on their renewable energy bets.
Simply put, a lot of those startups aren’t worth nearly what their sponsors paid for them and some of those zero-emission ventures are just plain zeroes.
It’s a reality check for investors such as BlackRock Inc, Riverstone Holdings and Canada’s Caisse de Depot et Placement du Quebec.
They’re finding the buzzy startups they chose just a few years ago in wind and solar energy, electric vehicles and other environmentally friendly fields don’t make money on their own.
Instead, they depend in their early stages on subsidies and other government programmes.
It doesn’t help that initial valuations were inflated by cheap debt and competition from dabblers in environmental, social and governance investments who bid up assets.
It was a recipe for disappointment even before Donald Trump’s return to the White House and now those federal supports are in jeopardy amid his opposition to renewables.
The result: Sponsors are marking down assets, cutting costs and calling for expert help as they try to figure out what their holdings are really worth.
“Private equity funds are saying, ‘Now what do we do?’” Jason McDannold, Americas co-lead for private equity at consulting firm AlixPartners, said in an interview.
“Tightening of the belt won’t be enough.”
This is a stark change from 2021 and 2022, when the sector drew nearly US$1 trillion of investment across those two years.
The Inflation Reduction Act of 2022, which allocated hundreds of billions of dollars for clean-energy investments, added fuel to the fire. — Bloomberg