PE Investment: A Catalyst for Growth in the Renewable Energy Sector

Over the past ten years, the renewable energy sector experienced significant growth, driven by growing demand for clean energy and supportive government policies. The shift toward sustainable energy is evident, with wind power and solar photovoltaics (PV) accounting for 23.9% of world’s total installed power generation capacity in 2022. This transformation is further supported by a rise in private equity-backed renewable energy deals, which surged from USD 24 Bn in 2019 to USD 60 Bn in 2023. As the world progresses toward a greener energy future, private equity firms play a vital role in funding and driving this transition. This article explores the trend of private equity firms investing in renewable energy projects and technologies, analyzing the factors driving this shift, the strategies employed by these firms, and the broader implications for the sector.

Introduction

The global energy landscape is experiencing an alteration driven by the critical need to address climate change, decrease dependence on fossil fuels, and combat global warming. Fossil fuels—coal, oil, and gas—are the largest contributors to climate change, accountable for over 75 percent of global greenhouse gas emissions and nearly 90 percent of all carbon dioxide emissions. To keep global warming below 1.5 degrees as called for in the Paris Agreement, emissions need to be reduced by 45% percent by 2030 and reach net-zero by 2050. Achieving these targets necessitates a significant shift away from fossil fuels and a concerted investment in clean, accessible, affordable, sustainable, and reliable alternative energy sources. Renewable energy sources including solar, wind, and hydropower, have emerged as economically viable and sustainable alternatives to traditional energy sources. Consequently, private equity (PE) firms have increasingly recognized the potential of renewable energy, directing substantial capital into the sector to capitalize on its growth prospects.

Number of PE-led Investment Deals in Renewable Energy Space: 2019–23 

Key Deals in Renewable Energy Space: 2024

Drivers of PE Investments in Renewable Energy

• Supportive Policy Environment: Governments worldwide have implemented policies and incentives to promote renewable energy. These policies include investment tax credits, subsidies, feed-in tariffs, and renewable portfolio standards, creating a supportive environment for PE investments. Such policy frameworks reduce investment risks and enhance the attractiveness of renewable energy projects for PE firms.
• Growing Demand for Clean Energy: The global push toward sustainability has led to a significant increase in the demand for clean energy. Renewable electricity capacity has surged to 340 gigawatts (GW), now representing 30% of global electricity generation—up from 19% in 2000. PE firms are capitalizing on this growing demand by investing in renewable energy projects that offer long-term revenue streams and growth potential.
  
• Shifting Investor Preferences: Investors are increasingly prioritizing sustainable and socially responsible investments. PE firms are adopting their strategies to align with these trends, aiming for strong returns and a positive environmental impact. By investing in renewable energy projects, PE firms can attract capital from environmentally conscious investors and enhance their reputation as responsible investors.
  

Investment Strategies of PE Firms in Renewable Energy

Direct Investments in Renewable Energy Projects: PE firms actively invest in renewable energy projects, including solar farms, wind farms, and hydropower plants. These investments involve acquiring or developing renewable energy assets, managing project financing, and optimizing operational performance. Direct investments provide PE firms with control over project management, allowing them to focus on value creation and improve returns.

In January 2024, BlackRock invested USD 500 million in Recurrent Energy, a subsidiary of Canadian Solar to support the solar project development pipeline and its transition into a developer, long-term owner, and operator of solar and energy storage assets in US and European markets.

Platform Investments and Scaling: PE firms often use a platform investment approach by acquiring multiple renewable energy assets and building project portfolios. This strategy enables firms to achieve economies of scale, leverage operational synergies, and optimize asset management. By scaling their renewable energy investments, PE firms can enhance cost efficiencies, negotiate favorable contracts, and achieve higher returns on investment.

Gaw Capital Partners partnered with Maoneng Group’s Australian business with a focus on developing six major projects in Victoria, New South Wales, and South Australia with a combined total of 1.9 GW in battery storage and solar power generation. They are further exploring new renewable energy opportunities.

Investment in Technology or Concepts: PE firms are increasingly investing in early-stage companies developing innovative technologies within the renewable energy sector. These investments focus on startups working on advanced solar technologies, energy storage solutions, smart grid systems, and other sustainable innovations.

Havfram, a Norway based offshore wind services company secured USD 500 Mn in equity funding through a partnership with Sandbrook Capital and Public Sector Pension Investments (PSP) in Nov 2022. The funding would be used to develop a fleet of offshore wind vessels, designed to install turbines exceeding 300 meters in tip height and foundations weighing up to 3,000 tons in water depths of up to 70 meters

Public-Private Partnerships and Co-Investments: PE firms collaborate with governments, utilities, and other institutional investors through public-private partnerships and co-investments. These partnerships allow PE firms to leverage additional capital, share risks, and access expertise in project development and operations. Collaborative investments enhance the viability of large-scale renewable energy projects and facilitate the transition to sustainable energy systems.

In 2024, the U.S. Department of Energy (DOE) invested USD 71 Mn to expand the network of domestic manufacturers within the U.S. solar energy supply chain. The selected projects such as Re:Build Manufacturing (USD 1.9 Mn), Silfab Solar Cells (USD 5 Mn), Ubiquity Solar (USD 11.2 Mn), and GAF Energy (USD 1.6 Mn) would address gaps in the domestic solar manufacturing capacity across the supply chain including equipment, silicon ingots and wafers, and silicon and thin-film solar cell production.

Outlook and Opportunities

The future of private equity (PE) investment in the renewable energy sector presents significant potential, as the rising demand for clean energy and continued technological advancements drive innovation. Several emerging trends and opportunities are poised to shape the trajectory of PE involvement in this growing industry

Energy Storage and Grid Integration: In 2022, investments in Battery Energy Storage Systems-BESS surged to over USD 5 Bn, nearly tripling the previous year's amount. This growth highlights the expanding role of PE in advanced energy storage technologies, which are essential for boosting the reliability and efficiency of renewable energy systems. By investing in grid integration solutions, smart grids, and digital platforms, firms can enhance energy distribution, improve grid resilience, and facilitate the smooth integration of renewable sources.

Offshore Wind and Floating Solar: PE firms can support development by investing in offshore wind and floating solar initiatives and driving growth and commercialization in these expanding markets. 

Recently, Spain regulated the coverage and water quality for floating solar projects, and Portugal auctioned floating solar development. Additionally, Greece licensed 13 floating solar projects with a combined capacity of 839 MW on artificial lakes and reservoirs.

Decentralized Energy Systems and Microgrids: The transition towards decentralized energy systems and microgrids is gaining momentum, offering opportunities for PE investment. Decentralized energy systems enable localized energy generation and consumption, enhancing energy resilience and reducing transmission losses. Microgrids provide self-sufficient energy solutions for remote communities and industrial sites. PE firms can invest in decentralized energy projects, supporting the deployment of renewable energy technologies and enabling access to sustainable energy.

Conclusion

PE firms play a pivotal role in the renewable energy boom, driving capital, innovation, and expertise into the sector. The involvement of PE in renewable energy projects and sustainable technologies is reshaping the energy landscape, accelerating the shift to a low-carbon economy, supporting global initiatives to combat climate change. As the demand for clean energy increases, PE firms can drive sustainable development, achieve attractive financial returns, and positively impact the environment. By leveraging their capital, expertise, and strategic partnerships, PE firms can continue to lead the way in renewable energy change and outline a sustainable future.