Investors put more toward renewable energy

By Caroline Humer

NEW YORK, (Reuters) – With renewable energy sources such as wind and solar becoming more common on Main Street and Wall Street, investors who have focused on old-world oil and gas companies and power producers are putting investment dollars into these new companies.

Private equity fund First Reserve and General Electric’s(GE.N: Quote, Profile, Research) Energy Financial Services are two large energy investors who plan to put more money toward alternative energy sources during the next few years, executives at both firms said.

First Reserve plans to put 10 percent to 15 percent of its newest $7.8 billion private equity fund toward renewable energy, or $780 million to $1.17 billion, while GE has plans to double its spending in the area to $4 billion by 2010.

“Many of the renewables are now at the intersection of Main and Wall Streets. There is a significant Main Street appetite for renewables, and there is starting to be a size and order of magnitude that get the attention of folks such as us,” said First Reserve director Glenn Payne.

Areas that are interesting include harvesting methane from landfills and coal mines and combusting it for energy as well as greenhouse gases, which has created a market for trading credits, Payne said.

Part of the difficulty is finding investments that are large enough to be worthwhile for a fund the size of First Reserve’s, he said. Biofuel deals, particularly ethanol, and some biodiesel deals fit into this category as do wind deals, he said.

Among purchases First Reserve has made so far are a 50 percent stake in Blue Source, a U.S.-based aggregator of greenhouse gas emission reduction offsets. It also has acquired a landfill waste company called Industrial Power Generating Corp., or Ingenco.

GE Energy Financial Services is also looking at wind energy, solar and investments around biomass, which involves recovering gases from waste such as wood chips and landfills, according to Jim Burgoyne, managing director at GE Energy Financial Services.

One area that the group is looking at is offshore wind generation, he said. That has come as some developers have begun to question if construction, particularly in parts of Europe, has reached a saturation point. The unit already has a deal with French wind company Theolia (TEO.PA: Quote, Profile, Research) in which it took a stake in the company and combined wind assets.

It has also invested in solar energy, he said, pointing to the construction of a solar power plant with a SunPower Corp. (SPWR.O: Quote, Profile, Research) unit PowerLight and Catavento SA in Serpa, Portugal.

Competition for the renewable assets that are out there has picked up, which has affected returns in some aspects, said Burgoyne, but investment in the sector has also created new opportunities

“There are more people flooding into the space, both from a development standpoint and a capital standpoint,” he said. But, he said, many of the investors had come on board earlier this decade in the wake of the collapse of credit in the power industry.

Those investors who were interested in distressed asset have since stayed in the sector and as the renewable energy space has grown, have stepped into it along with everybody else, he said.

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