Inside ArcLight’s Great River Hydro exit

Documents from MainePERS Private Market Investments, a co-investor in Great River Hydro, show the exit generated an IRR of 41.3 percent.

Long-term power sales contracts, coupled with other organic strategies, propelled the monetization of Great River Hydro, a Westborough, Massachusetts-based hydroelectricity provider that ArcLight Capital Partners sold to Hydro-Québec for approximately $2 billion in a deal that closed February 10, affiliate title PE Hub reported.

Documents from MainePERS Private Market Investments, a co-investor in Great River Hydro, show that it generated an IRR of 41.3 percent.

Andrew Brannan, ArcLight Capital Partners

ArcLight, a Boston private equity firm, invested in Great River Hydro for nearly six years. In an interview with PE Hub, managing director Andrew Brannan said his firm’s focus was to develop a profitable business model for the company upon investment.

“When we underwrote Great River in 2016, through when we sold it in 2023, our focus was developing a high-quality business rather than an asset,” Brannan said.

ArcLight has been investing in renewable power generation since its founding in 2001. Brannan said the firm has a lot of experience in hydroelectricity, and when the Great River Hydro portfolio of assets came to market in 2016, “it made a lot of sense for us to review it.”

Great River Hydro owns 13 hydroelectric generating stations with a total capacity of 589 megawatts along New England’s Connecticut and Deerfield rivers, as well as a portfolio of co-located battery storage and solar development projects, representing one of the largest conventional hydroelectric portfolios in New England.

The generated power can service more than 213,000 homes per year, the company said.

But to grow the company, ArcLight implemented three strategies upon acquisition.

The first, Brannan said, was capitalizing the company. “The business didn’t have debt financing in place prior to our acquisition. We placed a 15-year investment grade bond when we acquired it, and that bond is going to stay in place for the next owner.”

Secondly, ArcLight moved to commercialize the business. When the firm acquired Great River Hydro, the company had no long-term power sales agreements or contracts in place. Within the renewable energy space, securing long-term and lucrative contracts has been a challenge for many developers.

Among the long-term agreements is a 30-year contract with Green Mountain Power, which serves approximately 266,000 residential and business customers in Vermont.

“We thought it was a favorable trade-off of risk and reward to contract at a fixed power price offtake for 30 years,” Brannan said. “It’s ultimately an evaluation we make on a case-by-case basis, but here we thought it was accretive to the overall platform.”

Thirdly, ArcLight shook up the management team. “We placed into the business a leadership team of seasoned hydroelectric executives that ArcLight had worked with in prior investments to develop a standalone renewable energy infrastructure platform,” said Brannan.

As a company that was operational before the pandemic triggered supply chain challenges, Great River Hydro had no problems obtaining vital equipment, according to Brannan. There have been reports of some renewable energy companies facing challenges in obtaining key components.

ArcLight’s portfolio includes other renewable energy investments. Recently, the firm committed $150 million to Elevate Renewables, a Boston-headquartered company that was formed by the PE firm last year with a focus on battery technology.