Overvalued Bets and Financial Reality
Private equity firms that once enthusiastically backed renewable energy startups are now grappling with financial setbacks as many of these ventures struggle to generate profits. Major investors, including BlackRock Inc., Riverstone Holdings, and Canada’s Caisse de Dépôt et Placement du Québec (CDPQ), are facing difficulties as their investments in wind, solar energy, electric vehicles, and other green technologies have not yielded the expected returns.
Many of these startups heavily relied on government subsidies to sustain operations, especially in their early stages. However, with shifting political landscapes and economic uncertainties, federal support for clean energy projects has been reduced, leaving these companies vulnerable. The inflated valuations of these investments, fueled by cheap debt and market enthusiasm in 2020 and 2021, further exacerbated the situation.
As a result, private equity firms are reassessing their holdings, cutting costs, and seeking expert advice to navigate the financial turbulence. According to Jason McDannold, co-lead for private equity at AlixPartners, simple cost-cutting measures are insufficient to salvage the struggling ventures. The sector, which attracted nearly $1 trillion in investment in 2021 and 2022, is now undergoing a drastic recalibration.
Major Losses and Struggling Firms
Several high-profile firms have been forced to mark down their renewable energy assets. BlackRock, for instance, made headlines in December after slashing the valuation of its third Global Renewable Power Fund following poor returns. Meanwhile, Riverstone Holdings has written down at least seven of its renewable energy investments, with some being devalued to zero and at least one facing bankruptcy.
Other investment firms have also suffered setbacks. CDPQ, a major pension investor in infrastructure, experienced significant losses in electric vehicle-related ventures, including Lion Electric and Northvolt. Similarly, Tikehau Capital’s investment in Demand Power, a power supply developer, faced delays in commercial operations and ultimately went into receivership.
Greenbacker, a key investor in green technology, announced in late January that its chief financial officer had stepped down, prompting a review of its investment portfolio. The company has since paused the publication of monthly net asset values as it reassesses the worth of its assets. Despite these challenges, some investors argue that their renewable energy portfolios have still outperformed conventional energy investments over the long term.
Future Outlook and Strategic Shifts
Despite the setbacks, private equity firms are not entirely abandoning the renewable energy sector. Large institutional investors, such as pension funds, continue to seek stable, long-term returns from established wind and solar farms. Brookfield Asset Management, for example, recently committed $1.7 billion to expand its U.S. onshore renewables portfolio, while CDPQ is investing $7 billion in acquiring Innergex Renewable Energy Inc.
Several firms are also adapting their strategies in response to market realities. BlackRock has halted fundraising efforts for a new $7 billion renewable energy fund, while others, including KKR & Co., TPG Inc., and Brookfield, are raising billions for climate-focused investments. According to industry experts, the downturn presents an opportunity for firms to acquire undervalued assets at lower prices.
While the renewable energy sector faces financial headwinds, investors remain optimistic that the long-term demand for clean energy will continue to drive growth, albeit with more cautious and realistic valuations.
