Guy Hands's Terra Firma Capital Partners Ltd. may invest as much as 500 million euros ($692 million) in clean energy this year as low interest rates and rising oil prices make the industry more attractive.
The British private equity firm's founder said he earmarked 300 million euros to 500 million euros for renewable energy in his TFCP III fund, which raised 5.4 billion euros in 2007. Hands, 51, is looking at onshore wind projects and anaerobic digestion technology, which converts waste to energy.
Hands, a former Goldman Sachs Group Inc. executive who built Terra Firma into one of the U.K.'s most prominent funds, has taken stakes in clean energy since the start of the credit crisis three years ago. His leveraged buyout fund lost almost a third of its value when Citigroup Inc. wrested control of the EMI Group Ltd. record label. Hands said his "green energy" investments have returned four times what he put into them.
Speaking from his office in Guernsey between the U.K. and France, Hands said cheap financing is bringing together buyers and seller of projects so "there will be a vast increase in the amount of energy derived from low-carbon sources." Should Middle East unrest push crude prices higher than the $103.41 a barrel it reached in the U.S. last week, that may prompt regulations benefitting alternatives to fossil fuel.
Oil's Impact
West Texas Intermediate crude futures in New York rose 58 cents a barrel to $100.21 this morning after closing at the highese prices since September 2008 yesterday.
Terra Firma, which has completed transactions worth 43 billion euros since it formed in 1994, invests in clean energy as part of a general fund. The funds for clean energy will come from the 1 billion euros yet to be allocated in the TFCP III. It also buys stakes in housing, agriculture and entertainment. The firm has invested 13 billion euros of its own equity and distributed 12 billion to clients, with an internal rate of return of 40 percent since then.
Wind Purchases
It paid $143 million for the British wind turbine operator Novera Energy Plc and $350 million for Everpower Wind Holdings Inc. in the U.S. in the last two years.
Terra Firma already produces 10 percent of the U.K.'s electricity from clean sources.
Terra Firma may buy two dozen smaller generation companies or a few bigger ones and is evaluating about 20 wind projects, Hands said.
'Opportunity'
It's four to six weeks from completing an agreement to buy the solar energy company Rete Rinnovabile Srl from Terna SpA, Italy's grid operator, for as much as 670 million euros. That could be a platform for further solar purchases, Hands said.
On wind, he said, Terra Firma focuses on buying cheap assets so incentives or subsidies aren't so crucial. It's focusing on projects onshore as the industry focuses on developing bigger offshore projects.
Interest Rates
The plans are predicated on borrowing costs remaining low, though Hands didn't specify how cheap they need to be.
The clean energy industry attracted record investment of $243 billion in 2010, according to Bloomberg New Energy Finance. Hands said his plans don't require changes in government policy, though he expects some form of carbon tax to emerge in the U.S.
A national carbon cap-and-trade bill backed by President Barack Obama to curtail emissions from burning fossil fuels didn't get enough support to pass last year.
In that market, Terra Firma bought Everpower Wind, a New York-based developer, in August 2009. It was a way of entering an industry where no capital flowed after the financial crisis, Stewart said.
Debt Expense
Late last year, Terra Firma cut debt expense at Everpower's Pennsylvania-based Highland wind farm by refinancing a high-cost loan it agreed to around the time Lehman Brothers collapsed in 2008, Stewart said.
Terra Firma intends to use Everpower as a platform to buy distressed wind farms assets and to build a portfolio business, he said.
The company has avoided investments in Spain. The solar market there cut subsidies as the government sought to reduce electricity costs.
It bought Infinis Plc in 2003 when it was an under-managed 10-megawatt waste-to-energy company that no one thought worth anything, Hands said. It now produces almost 500 megawatts of renewable power.
