Despite the healthy response to a Carlyle Group (NASDAQ: CG) investment fund for energy projects and power generation, a Carlyle manager doubts that boom times are around the corner.
The Carlyle Energy Mezzanine Opportunities Fund (CEMOF) announced Nov. 27 that it had raised $1.38bn for investment in energy projects, including the power generation sector. That’s nearly twice the Carlyle fund’s initial goal of $750m.
Nevertheless, David Albert, managing director and co-head of the energy credit investment team, cautions that most regions of the United States and Canada still have plenty of electric generating capacity to spare.
In addition, Albert expects U.S. power generation growth to remain “tight” for the near term until the overall economy improves. That’s despite the uncertain fate of many older coal units endangered by tougher Environmental Protection Agency standards.
Albert, who is based in New York, made his comments during a recent telephone interview with GenerationHub. Albert is a veteran of energy mezzanine financing who came to Carlyle Group after spending 12 years at Morgan Stanley, where he had been managing director and global head of project and structured finance.
The sector veteran said power generation remains attractive to investors who take the long view.
“People like the sector,” Albert said. “People feel like we are in a cyclical downturn right now,” Albert said of generation. Investors see this as a good time to get into the market as a buyer of power infrastructure.
At the same those who own existing infrastructure are hesitant to put their assets up for sale now. “You don’t have a lot of sellers right now.” People don’t want to sell in a downturn, he added.
But whether its existing infrastructure or new power projects, energy markets are regional, Albert noted. Developing a project in Texas is typically much different than one in New York, he said.
The Carlyle mezzanine fund primarily targets investments in projects and companies in the power generation and energy sectors requiring capital of $20m to $150m per transaction.
The fund is off to a strong start having already made six investments in the energy sector – two of which are power generation projects. One of them is a natural gas, combined-cycle power plant while the other is a 37-MW wood waste biomass plant in Connecticut.
The latter is the Plainfield Renewable Energy project in Plainfield, Conn. The Carlyle Energy Mezzanine Opportunities Group’s participation in the biomass plant is already public record, Albert noted. Connecticut Light & Power, a Northeast Utilities (NYSE: NU) company, has agreed to a long-term off-take contract with the facility.
The Carlyle official said the renewable energy development sector is already seeing ill effects from the pending expiration of the production tax credit (PTC) and other incentive programs.
A lot of renewable projects “are not economically viable on a stand-alone basis” without some type of government support, Albert said.
Albert noted that Carlyle Group is a global asset manager and the energy mezzanine fund is in a different branch of Carlyle than the infrastructure group, which is involved in the purchase of Cogentrix Energy from Goldman Sachs Group.