Rapidly evolving green energy space challenges private equity and investment banks

Billions of dollars are available for green investments as the world tries to control greenhouse gas emissions from the energy sector, but finding the best bet is a challenge because the energy transition is changing so rapidly, said private equity managers and investment bankers.

As panelists defined their top picks for green investments on March 9 at the CERAWeek by S&P Global energy conference in Houston, renewable natural gas emerged as a particularly controversial option.

According to Steve Pattyn, Founder and Chief Investment Officer of Yaupon Capital Management LP. In contrast, BeyondNetZero Managing Director Rhea Hamilton sees energy efficiency as “best value for money”, with further potential in emerging investments in carbon markets.

But considerations beyond carbon reductions and costs will also come into play, said HPS Investment Partners LLC managing director Don Dimitrievich. There is not enough renewable gas to cover a sizeable part of the demand market and producers do not have the capacity to expand rapidly, Dimitrievich mentioned.

“This investment is not scalable”, said Dimitrievich.

Disturbance waits

Fund managers have described “green swans” that could influence the energy transition – a riff on the black swan theory, which argues that unexpected factors or events can have significant impacts on society. These strengths ranged from Russian military action to technological advances, fund managers said.

“The green swan is the ingenuity of everyone in the industry,” Pattyn said. “At any time, with the information I had, I would have drawn a series of conclusions that would have led me to dramatically misguided investments.

“What I had to focus on was how quickly things were changing and how the men and women in the industry would react,” Pattyn said.

Dimitrievich cited Russia’s recent invasion of Ukraine as an example of an event that can have cascading impacts. “High oil prices, high transport prices will invariably have to act as a catalyst to decarbonize and electrify the energy system,” Dimitrievich mentioned.

The extra cash flow oil and gas producers receive from high commodity prices could increasingly fund alternative projects in Europe and hydrogen, Scott Roose said. Managing Director of Credit Suisse and Global Head of Environmental, Social and Governance Investments.

The dollar in action

BeyondNetZero’s most recent investments included supporting a company that digitizes waste management and another that builds vertical farms. One of BeyondNetZero’s missions is to bring global industries back to local economies.

HPS provides growth capital to established companies. It is heavily invested in large-scale solar power and battery storage. Pattyn described Yaupon Capital’s portfolio as “lucid short, long crude oil,” referring to electric vehicle maker Lucid Group Inc.

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