Private equity firms are intensifying their involvement in energy transition companies within their portfolios, assuming greater responsibility to mitigate escalating costs stemming from supply chain disruptions and safeguard valuations, Reuters reports.
Executives at the CERAWeek energy conference emphasized this proactive stance amid mounting challenges faced by new-energy firms.
In recent years, substantial investments have poured into companies driving the energy transition, focusing on innovative technologies such as biofuels, hydrogen, solar, wind, and carbon removal.
However, the convergence of factors including the COVID-19 pandemic, supply chain disruptions, delayed technological advancements, and surging demand for fossil fuels has posed significant hurdles for these firms.
To address these challenges, private equity investors have adopted a more hands-on approach. Carlyle Group, for instance, has proactively negotiated agreements with Chinese suppliers on behalf of its portfolio companies to secure key components such as solar panels and electrical equipment, ensuring project timelines remain unaffected despite supply chain constraints.
Pooja Goyal, Chief Investment Officer at Carlyle Global Infrastructure, highlighted the importance of strategic procurement decisions in maintaining project momentum amidst supply chain bottlenecks.
“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.
Steven Mandel, Business Unit Partner at TPG Rise Climate, emphasized the significance of offering comprehensive support beyond capital investment, encompassing strategic guidance and operational expertise to help startups achieve their climate objectives.
While market turbulence has led to a correction in valuations, presenting challenges for energy transition firms, private equity firms see opportunities to make strategic investments.
This includes acquiring assets or engineering teams from struggling firms and buying out other investors in portfolio companies to facilitate sustained growth and profitability.
Gabriel Caillaux, Head of Climate at General Atlantic, while speaking with Reuters, underscored the importance of addressing geopolitical risks.
“In more complex operating environments, entrepreneurs and founders become much more selective about the types of firms they want to partner with.”
“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.
