EIG last week closed on a $400 million deal with 8minute Solar Energy, a Los Angeles-based firm operating solar power plants and integrated energy storage facilities across the United States. The capital deployed came via both preferred equity and a letter of credit. EIG declined to disclose the size of the stake that was purchased.
According to the DC-based EIG chief executive Blair Thomas, the firm targets investments with big, private developers rather than individual projects, and 8minute was the most attractive US-based company his firm could find in this vein.
He stated: “If you look at the private companies, a lot of them have been acquired and are part of bigger public companies now. But for private companies, [8minute] is one of the largest, and it has a technology angle as well. So in addition to being a quality solar developer, they also combine storage and technology and deliver a little bit of a differentiated solution to customers. We think that gives them a competitive advantage”.
The fund that completed the transaction, EIG Energy Fund XVII, is from EIG’s main fund series, which is now wrapping up its investment period. Energy Fund XVII closed on $3.11 billion in June 2019, below its $5 billion target, and invests across the entire energy value chain as well as renewables. Thomas stated that the firm’s first dedicated renewables fund being raised – EIG Energy Transition Fund – also participated in the investment, but the bulk of the capital came from Energy Fund XVII.
Thomas added that the market is being geared towards renewables, and thus LPs are demanding more capital to be dedicated to these spaces. Of the over $1 billion in investments made by EIG in 2021 – when the deal was originally agreed – in zero carbon assets, this solar energy deal comprises about 40 percent capital deployed. This is because EIG is, in the words of Thomas, “bullish on solar, from a technology standpoint.”
‘Smarter’ energy investing
Going forwards, Thomas expects a larger portion of capital to go towards solar energy, as he believes it – alongside wind energy – has a competitive advantage in the renewables market. The 8minute investment is accompanied by three other solar-based investments in EIG’s portfolio: Abengoa, ib vogt and Sunlight General Capital. EIG’s largest investment in solar is in Chile, where the firm is launching Latin America’s first thermal solar project, Cerro Dominador, alongside aforementioned partner company Abengoa.
In the transportation and industrial sectors, the firm is looking towards green hydrogen through the 8minute deal, which Thomas hopes will be a complement to existing investments in solar and wind, providing a clean energy source.
Despite the firm’s favourable outlook on renewables, it has no plans to divest from natural gas in the coming decades.
Thomas explained that “we are trying to be smarter about where we invest in it [natural gas] and we’re principally investing in the midstream and transportation components of it. Yes, we’re investing in renewables and hydrogen and storage, but we also can’t turn our back on gas because it’s what’s driving the economy today. And that’s just not going to change in the near term.”
Thomas added that the parts of the value chain that the firm is focused on investing in are infrastructure – including midstream assets – and renewables, adding: “The piece of our business that is undoubtedly shrinking is upstream. If you look at our investment activity today, it’s a fraction of what it was 10 years ago in that space. And I don’t see that reversing.”
Thomas concluded: “We think that there’s tremendous growth yet to come in the solar space. I think with the legislative changes that have happened and that are projected to happen in the United States, that will continue to have the wind at their back.”