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The Energy & Environment Investor

News and Trends Impacting Investments in Energy and Environmental Solutions

McGuireWoods Attorneys Break Ground at Inaugural PACENation Summit

Posted in Project Development & Financing

McGuireWoods attorneys Mark Kromkowski, Doug Lamb, Jen Stearman and Wisam Naoum recently collaborated for several of them to attend the first annual PACENation Summit in Denver, Colorado from February 29 to March 2.

This first of its kind conference brought together lenders, private equity funds, developers, contractors and governmental representatives working with PACE financing (Property Assessed Clean Energy). PACE is a form of financing providing commercial and residential land owners and developers access to the capital needed for energy-efficient building upgrades, installation of renewable energy generation assets and other sustainable improvements, as permitted by applicable law. The benefit PACE typically provides is the securing of the loan with a special assessment authorized by the applicable state or local jurisdiction.

PACE 101 Presenters (L to R): Mark Pikus of Inland Green Capital, Doug Lamb of McGuireWoods LLP and Abby Johnson of Abacus Property Solutions

McGuireWoods had a strong presence at the conference with Doug Lamb participating on the PACE101 panel with Abby Johnson of Abacus Property Solutions and Mark Pikus of Inland Green Capital. To view their presentation, click here.

To learn more about McGuireWoods’ PACE financing capabilities and PACE programs generally, please click the below links.

About McGuireWoods’ PACE Financing Practice

Pointers for PACE Programs



Oregon – RPS Up. Coal Down.

Posted in Policy & Regulation

Utilities purportedly critical in passage of Oregon law that reportedly requires the subject utilities, by 2030, to use renewables for half of the power needs of their customers. Moreover, the law removes coal from the rate base by 2030. The law can be found here via the Oregon State Legislature’s website.


IESO Awards Contracts for Sixteen Renewables Projects

Posted in Power Production & Supply, Solar

Canada’s Independent Electricity System Operator has completed its review of 103 proposals received in response to its Large Renewable Procurement program. IESO has offered contracts for sixteen projects, including contracts for five wind projects, seven solar projects and four hydroelectric projects. The winning projects are expected to produce over 450 megawatts of capacity, with individual project capacity ranging from 1.375 megawatts to 100 megawatts.

The winning projects are listed on IESO’s website here: http://www.ieso.ca/Documents/generation-procurement/lrp/lrp-1-final/LRP-I-RFP-Selected-Proponents-List.pdf



Distributed Solar Suit Expedited in 9th Circuit

Posted in Policy & Regulation, Solar

Distributed solar suit by Solar City lives. The 9th Circuit rejected the dismissal request from an Arizona utility named Salt River Agricultural District. Solar City’s suit claims that Salt River’s pricing is anti-competitive toward a distributed solar provider. Please click here for Law360’s coverage of the case.

Shareholders are Speaking out on Social and Environmental Issues

Posted in Environmental Markets

Shareholders are increasingly raising social and environmental issues in meetings.  Nearly 40 percent of all shareholder proposals submitted in the first half of meetings in 2014 were related to social and environmental policy issues.  This is over a 10 percent increase from 2010.  Political spending and climate change are predicted to be hot topics in 2015 shareholder proposals. Click here to download the report in Director Notes.  This report reviews the content of the social and environmental proposals voted on most frequently by shareholders of Russell 3000 companies during the proxy season.  The report also provides examples of proposal text and sponsor supporting statements and board responses and related corporate disclosure.  For additional information on the social and environmental policy issues that were the subject of shareholder proposals in 2014 and recent proxy seasons, download Proxy Voting Analytics (2010-2014), the annual benchmarking report published by The Conference Board in collaboration with FactSet.

NextEra Acquires Hawaiian Utility for $4.3 Billion

Posted in Private Equity & Venture Capital

NextEra recently acquired Hawaiian Electric Industries (“HEI”) in a transaction valued at $4.3 billion, subject to Hawaii Public Utilities Commission approval and approval by HEI shareholders. HEI shareholders will receive a 21 percent premium on the share price approximately.  Additionally, American Savings Bank, owned by HEI, will be spun off to shareholders and become an independent, publicly traded company. Hawaiian Electric Industries shareholders will receive 0.2413 NextEra Energy shares per HEI share and a one-time cash dividend payment of $0.50 per share. Citigroup Global Markets advised NextEra Energy, and J.P. Morgan Securities advised HEI.  NextEra owns and operates about 17 percent of installed U.S. wind capacity, 14 percent of U.S. utility-scale solar, and eight nuclear reactors. As of year-end 2013, NextEra had revenues of approximately $15.1 billion and 13,900 employees in the U.S. and Canada.

As Hawaii’s utility, HEI supplies power to almost half a million customers on Hawaii, Oahu and Maui.  Hawaii has the nation’s highest electricity prices and about 75 percent of the island’s power comes from imported oil.  The solar industry, generally, and particularly in Hawaii is in a troubled state; however, some suggest that an HEI acquisition might be a good idea.  MJ Shiao, GTM Research solar director, comments that HEI “is the living case study for high-penetration PV and the potential benefits and pitfalls of advanced PV integration regulations and technology. It will be interesting to see whether NextEra’s acquisition will influence the ongoing development of requirements in Hawaii, as well as to see how HECO’s experience will translate to [NextEra company] Florida Power & Light, which has seen relatively little distributed solar since Florida’s ARRA-backed incentives ended.”   [1]

[1] Hawaii’s Utility HEI Acquired by NextEra for $4.3 Billion, Eric Wesoff, December 3, 2014, http://www.greentechmedia.com/articles/read/Buying-Hawaiis-utility-seems-like-a-good-idea.

Venture Capital Coast-to-Coast

Posted in Private Equity & Venture Capital

VC Watch

We watch venture capital quarterly trends like everybody else, and are consistently surprised how much the “macro” statistics mask more telling “micro” or sector trends.  While the 2014 Q3 news highlighted the drop in VC fundraising and investment from the prior quarter, this will still be the biggest year for VC activity since the Great Recession.  Several stories within the big 2014 story have caught our eye.

Small and First-Time Fund Come Back

The median fund size raised was $119 million in the first three quarters of 2014.  Dow Jones Venture Source U.S. – 3Q 2014.  The number of new seed and early stage funds, including first-time players and seed funds formed by larger VC firms, has consistently increased through the first three quarters.  Although Q3 2014 fundraising was down from Q2, the number of new or first-time funds raised in Q3 increased as compared with Q2.  Thomson Reuters and NVCA, Year to Date VC Fundraising Surpasses Full Year 2013 Commitment Levels.

The big story of the last decade was the contraction in the number of VC funds.  But the new story may be the “bifurcation between a small number of very large venture firms who are investing funds well in excess of a billion dollars and much larger number of smaller VC firms.”  The Future of Venture Capital, Tech Valuations and the Fate of Tech Incumbents – Conversation with Bill Janeway, www.forbes.com.  The new class of $100 million or smaller funds should increase the number of seed stage deals going forward.  The first half of 2014, as compared with 2013, saw no increase in the number of seed stage deals (and they were smaller on average), with fewer (but larger) early stage, expansion and later stage deals. McGladrey Semi-Annual 2014 Venture Capital Market Trends ReportContinue Reading

Ambienta SGR Beats its Second Fund Target

Posted in Private Equity & Venture Capital

European private equity firm Ambienta SGR beat its second fund target, raising €323.5 million ($404 million), ahead of schedule.  The PE firm secured funding from the European Investment Fund, Generali, HarbourVest Partners, Hermes, Pantheon, RobecoSAM, Stafford Capital Partners, Unigestion and Zurich Insurance Group Ltd., Italian partnerships CNPADC, Fondazione Enasarco, Intesa Sanpaolo, Fondo Italiano d’Investimento and Poste Vita.  Ambienta’s total assets under management breached the €500 million mark.  In contrast, clean tech venture capital fundraising has seen a relatively weak year.

Given institutional and limited partnership interest in the green asset class, Ambienta plans to invest the money in energy efficiency and pollution control sectors.  The PE firm is focusing on perceived European companies’ competencies regarding pollution reduction and energy efficiency, which are derived, it says, from the region’s “historical” lack of natural resources and high population density.  Given the EU’s climate reduction goals for 2020 and 2030, there is a huge push for companies to be greener.  Last month, EU leaders agreed to cut greenhouse gas emissions by at least 40 percent by 2030.  This is to be achieved mainly through an emissions trading system and renewable energy and energy efficiency targets.  The European Council approved the greenhouse gas emissions reductions as well as an EU-wide binding target for renewable energy of at least 27 percent and an energy efficiency target of at least 27 percent. [1]

[1] Igor Kossov, PE Enviro Investor Beats Targets With $404M Green Fund, Law360 (November 04, 2014, 5:57 PM ET), http://www.law360.com/privateequity/articles/593453?nl_pk=a1e75a45-36a9-4b18-9a40-3a74b366d749&utm_source=newsletter&utm_medium=email&utm_campaign=privateequity.

Greyrock Announces Small-Scale Gas-to-Liquids Production Facility

Posted in Cleantech

Greyrock Energy recently announced a final investment decision to deliver one of the world’s first small-scale Gas-to-Liquids (GTL) facilities.  Greyrock, located near Houston, Texas, transforms natural gas into premium transportation fuels.  Greyrock targets midstream operators and producers who profit by turning low-cost natural gas into higher-value transportation fuels without the expensive, large-scale processes typical of traditional GTL solutions.  Greyrock’s facilities produce primarily premium synthetic diesel fuel from natural gas or natural gas liquids using the company’s innovative GreyCat™ catalyst and distributed GTL solution.  Modular gas conversion can be achieved from a variety of abundant gas sources, including natural gas, natural gas liquids, such as ethane, stranded gas resources and associated gas.  Greyrock’s plant will be commercially operational by the end of 2015.

The project is being funded by a consortium of investors led by Dallas-based Sterling Private Capital and Eagle Oil & Gas Co.  Art Harding, the Chief Executive Officer of Sterling Private Capital, believes that Greyrock has the “most advanced platform for small-scale Gas-to-Liquids conversion of natural gas into high value liquid transportation fuels.” [1]

[1] Greyrock Announces Final Investment Decision for Small-Scale Gas-to-Liquids Production Facility (November 4, 2014), http://www.greyrock.com/newsroom/greyrock-announces-final-investment-decision-for-small-scale-gas-to-liquids-production-facility.

Clean Tech Private Equity 2014 Halftime Report: Old Tricks, New Game

Posted in Private Equity & Venture Capital

Over the last decade, venture capital and private equity news sources have emphasized the short-term and often extreme swings in clean tech as an investment sector.  Quarterly and annual investment trends analyses have been inconsistent and, at times (and 2013 and Q1 2014 are no exception), hard to explain.  As a result, many investors (other than clean tech specialists, family offices and large funds, and institutions investing in renewables projects or discrete subsectors of clean tech) have pulled back from clean tech investing.  But a closer look at this evolving sector reveals that investors have refined their investing styles and migrated to and from various subsectors of clean tech as those subsectors have evolved.

Certain investors are seeking good yields from project finance and more debt-like plays, which others are employing old-style private equity discipline to find good clean tech companies with strong management teams and large addressable markets.  And each of these groups plays off the other – project finance has been stronger than VC and PE investment in companies of late, but the resulting projects and renewables manufacturers could ultimately become buyers from companies operating in the development, energy optimization and resource solutions.  The maturation of renewables and migration of capital to less mature clean tech subsectors (all despite strong economic and policy headwinds) reveals that, similar to health care’s evolution as an investment sector, clean tech is converging with the overall economy and is here to stay.

To analyze clean tech’s past performance, current state and future prospects, we think it is important to take Cambridge Associates LLC’s lead and divide clean tech into several subsectors – such as (1) renewables manufacturing, (2) renewables development, (3) energy optimization and (4) resource solutions.  We also think it’s critical to divide clean tech investing between project finance of power and fuel projects and facilities, on the one hand, and venture capital and private equity investment in companies providing clean tech solutions or energy-related services. Finally, beware of clean tech news sources and headlines which may make broad statements about clean tech investment but, upon a closer read, are only covering renewables or a few subsectors, or private equity or venture capital (and not project finance or corporate investment).  A long-term assessment of clean tech and the companies that operate within it demands a recognition that this sector is broad, economically convergent and, at the end of the day, a collection of energy projects and companies providing strikingly different risk and reward profiles.

Ups and downs in a relatively young investment sector are to be expected and eventually make its maturation and long term potential possible.  As with health care (including its service provider, pharmaceutical, medical device and IT subsectors), clean tech is an extremely broad universe of solutions and companies covering all stages of development and the entire energy and environmental solutions spectrum, and, thanks to consumer demand, corporate mandates and government policies, it is rapidly becoming integrated with the overall economy.  A closer look at clean tech’s evolution and the migration of capital to and from its different sectors reveals that, despite the growing pains and lost investments that typically accompany the growth of a major investment sector, investors appear resilient and committed to finding ways to capitalize on the longer-term opportunities within clean tech.

“Clean Tech”: One Subsector, and Company, at a Time

Venture capital and growth equity have flowed to renewables developers and companies providing energy efficiency and resource management solutions, while large private equity, pension funds and other institutional players have focused on project finance and energy facilities.  Most of the venture and private equity investment deals over the last decade have been early stage, but most of the money has gone to later stage companies with less risky return prospects.  Improved alignment of different types of investors with strikingly different types of clean tech investing, coupled with historical data that confirms wind, solar and biofuels have grown up, renewables development may provide superior and quicker returns (as compared to producers and manufacturers), and demand side solutions (energy efficiency and sustainability) and energy services providers and vendors (particularly in light of the gas boom in the U.S.) may present the best opportunities for venture capital and private equity funds to participate in clean tech in the next five to ten years as economic, tax and policy issues continue to be sorted out (or not).

Cambridge Associates LLC’s 2013 Clean Tech Company Performance Statistics evaluated company-level performance instead of the fund-focused capital raising and deployment and exit statistics more commonly published by other information sources.  Their report expressed the view that more traditional quarterly and annual VC and PE reports may not provide investors with adequate information to make informed choices within clean tech investing.  We agree, and some interesting things jumped out at us from this report:

  1. VC Dominance.  Of the 452 funds from which the Cambridge report drew, 327 were venture capital funds and only 125 were private equity funds.  One cannot help but think of the dominance of VC in life science investing.  Angel, family office and VC fund investors are funding clean tech research and development, entrepreneurs and companies.  These investors have to some extent moved away from renewables (the supply side and projects) to energy optimization and resource management (the demand side and companies).
  2. Sector Development.  Cambridge divided clean tech companies into four sectors:  (a) renewable power manufacturing, (b) renewable power development, (c) energy optimization and resource solutions.  Renewable energy development barely beat out manufacturing in total capital raised, with energy optimization comfortably taking third and the broader, and still evolving, resource solutions sector taking a distant fourth.  The numbers confirm that renewable power production has matured and is best for investors looking for predictable yields, renewables development is now producing higher IRRs than ownership, energy efficiency and storage are slowly growing up, and resource solutions (for example, water) are in their infancy.  We have previously referred to this as the “maturation” of the supply side and “migration” of venture and growth private equity capital to the demand side, and we believe this explains the current positive trends for project finance and negative news on VC and PE investment in clean tech.  At present, renewables development and energy optimization boast the highest returns, with renewables production having matured and resource solutions still coming of age.
  3. Clean Tech is So Young and the Capital Has Continued to Flow.  94% of the capital deployed in clean tech has been invested in companies that received their initial funding in or after 2005.
  4. U.S. – Big Capital, Small Returns.  U.S.-based companies have received 74% of the capital invested in clean tech but returns on these investments have been much lower than non-U.S. clean tech investment returns.  This may confirm two things:  U.S. climate change policies have trailed that of other countries, but investors continue to see the U.S. as the best place to make clean tech bets in the long term.  And this could be due to the prevalence of renewables projects overseas and the dominance of U.S.-born technology companies.
  5. It’s the Economy Stupid.  Clean tech investment peaked in 2008 and the amount of first-time capital in new clean tech companies has since declined.  However, total investment from 2008-2012 has outpaced 2000-2007, demonstrating that the economy, government policies and poor initial returns have not stopped the flow of capital to clean tech.

“Clean Tech”:  Project Finance and VC/PE Can Be Counter-Cyclical, But the Former Needs the Latter

Blue and Green Tomorrow (http://blueandgreentomorrow.com/2014/04/14/clean-energy-investment-up-14-in-first-quarter) reports that “clean energy investment” was up 14% in Q1 2014 over Q1 2013.  So, this refers to all financing of renewables.  Indeed, this uptick was comprised mostly of project finance bets on offshore wind.  Venture capital and private equity investment actually fell year-over-year.  And total investment in renewable power actually fell for the second year in 2013 (although Bloomberg Energy Finance credits reduced solar system costs for this).  Confused yet?

Once again, wrong conclusions can be drawn from the clean tech headlines – at least regarding the long-term prospects for clean tech.  Project and debt finance in clean energy projects has increased for four consecutive quarters.  But venture capital and private “equity” investment in clean tech companies trended down in Q1 2014.  This, despite a 10-quarter peak in solar investment by venture capital funds (i.e., in companies, versus utility-scale projects, reflecting the move to distributed solar).  Clean Energy Pipeline, “A promising start to new clean energy investment in 2014).  These subsector and capital markets cycles can be viewed as a natural and even positive part of an evolving and maturing investment class.  Investors have begun to find the right subsectors and securities for them, and the money has begun to find the right markets.

According to Bloomberg New Energy Finance (Global Trends in Renewable Energy Investment 2014), VC and PE investments in specialist renewable energy companies or their vendors plummeted in 2013 to its lowest level since 2005.  The explanation was classic (and perhaps true):  funds took a cautious view of young high-technology enterprises.  Contrast this with the performance of the public markets for renewable energy in 2013.  Institutional investors wanted less risky yields on portfolios of operating projects.  Pension funds and even family offices are increasing their investment in wind and solar projects.  Bloomberg’s report only included renewable energy production, so a less careful read of their headlines would miss the reality that VC and PE investment in developers, energy efficiency and resource solutions was a different story.

To be sure, the public market embrace of renewables and cost reductions in solar are just the most recent evidence that renewable energy is maturing and thriving.  This alone makes clean tech an investment sector that is here to stay, as clean tech solutions and energy service providers will have a larger market for their products and services.  However, it is equally true that VC and PE investors (as they did in the life science arena) will have to analyze and pick the most promising clean tech sectors based not only on their stage of technological and market development but the performance and prospects of the companies operating in those sectors.  VC and PE funds know how to find capital-light business models and well-managed companies.  This focus and ability should enable smart and patient investors to avoid the clean tech hype and achieve attractive returns from investments in real companies with good management and large addressable markets.  Sound familiar?