Daily Management Review

Investors Seize Control As New Energy Companies Struggle


Investors Seize Control As New Energy Companies Struggle
Executives at the CERAWeek energy conference stated that private equity firms are taking on more responsibilities to control runaway costs from supply chain concerns and maintain valuations, and they are doing it by increasing their direct oversight of energy transition companies in their portfolios.
In the last four years, companies hoping to influence the energy transition with biofuels, hydrogen, solar, wind, and carbon removal technologies have received billions of dollars in investment thanks to excitement around new energy technology.
However, a number of new-energy companies are in a perilous position because to the COVID-19 epidemic, following bottlenecks in the materials and equipment supply chain, slower-than-anticipated technological advancements, and rising demand for fossil fuels.
In response, seasoned investors have become far more involved, according to private equity executives.
At the CERAWeek by S&P Global conference in Houston, Pooja Goyal, chief investment officer of Carlyle Global Infrastructure, stated that the Carlyle Group had bargained for important components on behalf of its portfolio firms.
It entered into contracts with Chinese manufacturers of solar panels, electrical equipment, and other parts, frequently getting ahead of the queue on order books that were backlogged for a period of two or three years. Projects could stay on schedule thanks to this.
"No matter how much procurement you're doing (at the portfolio company level), you're going to be pretty much irrelevant to the suppliers," Goyal told the conference.
Buyout corporations can offer more than just procurement through economies of scale. For companies going through a difficult period, private equity firms' traditional principles—such as using their network of investments for collaboration and asking top personnel for management advice—are increasingly crucial.
According to Steven Mandel, business unit partner at TPG Rise Climate, "beyond capital, companies and founders are looking for investors like TPG that can deliver the full private equity toolkit."
The money managers are guaranteeing that these firms can navigate market volatility and pursue climate goals, all the while ensuring that their investments yield the anticipated profits.
The S&P Global Clean Energy index has lost over 30% of its value since the beginning of 2022, while the S&P 500 as a whole has gained 10%. Although more difficult to monitor, private company valuations are typically thought to have declined more than those of their publicly traded counterparts.
The correction also presents chances for new investments from buyout firms, which will ultimately help already-existing enterprises. This involves acquiring key engineering teams or assets from failing energy transition companies, especially those that went public through blank-check corporations during the boom and thereby lost a significant portion of their worth.
Additionally, they might buy out other investors in the portfolio company, giving management teams more time to develop and implement profitable innovations.
"In more complex operating environments, entrepreneurs and founders become much more selective about the types of firms they want to partner with," Gabriel Caillaux, head of climate at equity investor General Atlantic, said.
"Managing geopolitical risk, navigating how to leverage AI, scaling technologies, and ensuring you have a fully-funded business plan" are all things which cleantech CEOs are seeking help with, he added.