Capital Dynamics Inc., a Swiss private equity firm with about $20 billion in assets, plans to raise about $800 million over two years for two funds investing in U.S., European and Australian renewable energy markets.
The company is focusing on infrastructure projects with expected cash returns of 15 to 20 percent, managing director Karl Olsoni said in an interview yesterday in Tokyo, where the firm aims to raise as much as 20 percent of the funds. The firm declined to provide details of existing funds including the assets managed and investments.
Capital Dynamics is building on its fund-raising after being chosen by the California Public Employees Retirement System, the largest U.S. public pension plan, in October to take over management of its $480 million Clean Energy & Technology fund previously managed by Pacific Corporate Group.
Renewable energy is expected to provide about a third of the world’s electricity by 2035 compared with 18 percent in 2008, according to the International Energy Agency, as governments seek ways to prevent climate change caused by the burning of fossil fuels.
“There’s a lot of momentum for renewables,” Olsoni said. “It really doesn’t matter if you’re politically left or right. If you’re right you like it for energy security and if you’re left you like it because it’s clean and green.”
While progress is being impeded by a lack of a global agreement on curbing greenhouse gas emissions, the trend remains in favor of renewable energy, Olsoni said. Investment in environmental-technology companies grew 16 percent to $140 billion in the 12 months to Sept. 30, according to data compiled by Bloomberg New Energy Finance.
Cancun talks
Two weeks of United Nations-led talks that concluded in Cancun last week failed to reach an agreement on a global emissions target, while in the U.S., President Barack Obama said he may be unable to cut U.S. greenhouse-gas emissions after Republicans regained control of the House in Nov. 2 elections.
Republicans say they will seek to roll back Environmental Protection Agency rules limiting carbon pollution, ease curbs on coal mining and may try to block billions of dollars in federal subsidies for clean power.
The WilderHill New Energy Global Innovation Index, an 87- member benchmark of companies developing or using low-carbon technologies, has fallen 16 percent in 2010 after rising 40 percent in 2009.
U.S. standards
Even so, there are opportunities for generating returns in renewable energy, Olsoni said, citing the use of Renewable Portfolio Standards in the U.S., where individual states require electricity providers to obtain a minimum percentage of power from renewable energy by a specific date. A total of 24 states plus the District of Columbia have issued binding targets, while five other states have nonbinding goals.
Capital Dynamics is helping smaller companies win larger energy contracts with high rates of returns up to 20 percent, often with solar power in the U.S. states with renewable energy targets, he said. The criteria currently rule out investing in Japan, where the market is highly regulated and dominated by companies including Tokyo Electric Power Co., Asia’s largest electricity generator, that already have the technology and clout to win power contracts, Olsoni said.
‘Good cash yields’
“Many energy projects throw off very good cash yields that some Japanese investors might find attractive,” he said, adding that pension funds are showing interest. “These are long-life assets that produce long-term cash flow.”
Global installations of solar panels may more than double to 15.8 gigawatts this year as developers set up systems to benefit from government incentives, according to technology researcher Isuppli. Demand may rise to 19.3 gigawatts in 2011, Isuppli said last month.
Global coal-fired generation could drop one-third by 2035 in Western Europe and North America amid public opposition and costs linked to carbon dioxide emissions, according to the International Energy Agency’s 2010 outlook. By contrast, wind generation is poised to grow 8 percent annually, it said.
The sector isn’t without risks, Olsoni said. Spain recently cut subsidies to solar-thermal power plants and some wind farms to limit the cost of electricity for consumers. The government is seeking to reduce the impact of solar energy on electricity bills as solar plants claimed more than half the 5 billion euros ($6.6 billion) in renewable-power subsidies in 2009 while providing only about 11 percent of zero-emission power consumed.
Moody’s Investors Service said yesterday it may lower the country’s Aa1 rating less than three months after the previous cut. The country is “susceptible to further episodes of funding stress,” Moody’s said, citing the 290 billion euros of financing required next year by Spain’s central government, regional administrations and banks.
“Spain took the feed-in tariffs onto their fiscal balance sheet and didn’t pass the costs through to the utility customers and that created a disconnect that was unsustainable,” Olsoni said. “If you have feed-in tariffs that are passed onto rate payers as they probably should, you’re on more solid footing.”
