Private equity GPs to increase exposure to energy sector over next five years

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Renewable energy

An overwhelming majority (93 per cent) of private equity fund managers expect to make an investment in the energy sector over the coming five years as they seek to capitalise on the post-pandemic rebound in global demand for power and government-backed stimulus programmes.  

Of these, over half (51 per cent), stated they were ‘extremely likely’ to invest in energy.
The findings are revealed in a new study, Recovery to Rediscovery: Capitalising on a Changed Private Equity Landscape, which was commissioned by Auxadi, a leading provider of accounting, tax and payroll services to private equity, real estate, and multinationals. It was based on interviews with senior-level private equity investors with average assets under management of EUR14.4 billion.
The research highlights GP appetite for the renewable energy, with 89 per cent of investors describing the outlook as positive of which a third (33 per cent) say it is ‘very positive’. Almost two-thirds (62 per cent) of investors believe that pandemic-driven government commitments to green infrastructure investment, such as the USD2 trillion clean energy infrastructure plan introduced by President Joe Biden in the US, are most likely to influence investor allocations to private equity over the coming two years.
Over half (52 per cent) of respondents cited the need for GPs to pivot towards to sustainable investment strategies and a similar number (51 per cent) highlighted the falling costs of building renewable energy assets. Only half this number of GPs (26 per cent) believe that meeting carbon reduction and climate goals will have a tangible influence on renewable allocations in the next two years.
According to BloombergNEF data, private equity investment in renewables totalled USD2.6 trillion between 2010 and 2019, and the trend is set to accelerate in 2021 as renewable generation is expected to surpass oil and gas to become the largest area of energy spending.
The Information Technology sector, which has played such a vital part in keeping businesses operating during the pandemic, is the second highest ranked sector with 92 per cent of private equity investors planning to make at least one investment in the next five years.
Victor Salamanca, CEO at Auxadi, says: “Rising demand for electricity and surging coal and gas prices reflect an extremely tight energy supply that shows little sign of rebalancing any time soon. With COP26 fast approaching, private equity allocations to energy and renewables in particular will continue to soar as GPs capitalise on a compelling opportunity to generate outsized returns and pursue their sustainable investment commitments.”

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