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Power financiers bullish on merchant wind, gas-fired generation's longevity


Gas could be 10- to 20-year bridge fuel

Some large investors already dropping fossil fuels entirely

New York — Asian and European investors and Canadian pension funds remain active investors in US renewables, according to panelists at this week's S&P Global Platts Financing US Power Conference in New York.

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However, some of those same investors have seen their return on investment in wind and solar shrink, according to Mark Voccola, senior managing director in the Paris-based private equity firm Ardian.

"Renewable returns are too low," Voccola said, receiving some pushback from moderator Paula Zagrecki, the CEO of Zorya Energy Advisors.

"Everybody's saying how renewable returns are really compressed, but I think that's true of the utility-scale," Zagrecki said. "If you're going further down the market, if you're going to [commercial and industrial solar], if you're going to community solar, if you're going to the smaller developers, you can still get those returns."

Merchant wind, meanwhile, is coming into its own as an asset class, with David Janashvili, executive director at Moelis & Co., identifying it as a major trend to watch in the year ahead.

"We do see the biggest trend in the emergence of merchant renewables as an asset class," Janashvili said, and argued that merchant renewables are complementary to gas-fired assets.

Janashvili added that the critical question that needs to be asked when seeking to reduce carbon emissions is, "What is the mix of solar, wind, storage and some super-peakers that is needed?"


Natural gas acting as a transition fuel is a popular idea in many corners of the power finance community.

"Coal's literally and figuratively a four-letter word," Voccola said, adding that coal-fired generation has become "the asset class not to speak about." Now that sentiment has partially spread to gas-fired generation.

"In some parts of the world, gas has become coal, maybe quicker than coal became coal," Voccola said, who buys into the idea of natural gas being a bridge to renewables. "I think that the bridge is a long bridge, and we're voting for that with our capital."

Meanwhile, bankers financing project development and acquisitions are factoring attitudes toward fossil fuels into their work.

"We certainly think people are pricing it as if the bridge is only five years, but the reality is there's a lot more that needs to happen," Alan Liu, managing director at Goldman Sachs & Co., said. "The value here is being able to see through the long-term on these assets. It's not a five-year bridge. It's a 10-year bridge, it's a 15-year bridge, maybe even 20."

"We're building a combined-cycle project in Pennsylvania, so that bridge better be a hell of a lot longer than five years," Voccola told attendees to laughter, although he acknowledged that some large investors are beginning to swear off fossil fuels entirely.

"You're going to have volatility, you're going to have uncertainty in policy and regulations," Liu said of large gas-fired facilities. "But these assets are needed for the infrastructure of this country."


Running auctions for power assets may be on the way out, Liu said, who has observed "a little bit of auction fatigue, if you will." Partly responsible are recent auctions for power assets that stalled, ultimately producing no winner and no deal.

"Bilateral negotiations, potential for private mergers between portfolios of private generation companies, joint ventures [and] sales of minority interests" are all more likely to define power mergers and acquisitions than competitive auctions in the year ahead, according to Liu.

"Volume's likely to be, we expect, depressed," Janashvili added, listing uncertainty around emergent storage technology as another factor that could impact the dealmaking market.

Regardless of process, there does remain an ideal model when buying a portfolio, Liu said. Operating assets paired with a project pipeline include baked-in project revenue that can seed future growth and support development.

-- Fotios Tsarouhis, S&P Global Market Intelligence,

-- Edited by Manish Parashar,