In response to escalating supply chain challenges and mounting costs affecting energy transition companies, private equity firms are intensifying their direct involvement in portfolio companies.
In response to escalating supply chain challenges and mounting costs affecting energy transition companies, private equity firms are intensifying their direct involvement in portfolio companies. Executives revealed this trend during discussions at the CERAWeek energy conference this week. CERAWeek is the world’s premier energy conference.
The surge in investments over the past four years into new energy technologies, spanning biofuels, hydrogen, solar, wind, and carbon removal, generated significant excitement. However, the landscape changed dramatically with the onset of the COVID-19 pandemic, leading to disruptions in the supply chain, sluggish technological advancements, and a resurgence in demand for fossil fuels.
Acknowledging the need for a proactive stance, private equity executives disclosed a shift towards a more hands-on approach. Pooja Goyal, chief investment officer at Carlyle Global Infrastructure, highlighted Carlyle Group’s efforts to negotiate key component procurement for its portfolio companies. This included establishing agreements with Chinese suppliers to secure vital materials, thereby ensuring project timelines remained intact despite extensive order backlogs.
Goyal emphasized the critical role of private equity firms beyond procurement, stressing the importance of leveraging their investment network for collaboration and offering strategic management guidance to startups encountering challenges.
Steven Mandel, business unit partner at TPG Rise Climate, underscored the multifaceted support sought by companies and founders, emphasizing the significance of private equity’s comprehensive toolkit beyond capital infusion.
While navigating market volatility and pursuing climate objectives, private equity firms are also prioritizing the financial performance of their investments. The S&P Global Clean Energy index has experienced a significant decline since the beginning of 2022, prompting private companies to reevaluate their strategies to maintain competitiveness and profitability.
Moreover, the market correction presents opportunities for buyout firms to capitalize on distressed assets and talent acquisition from struggling energy transition firms. This includes acquiring assets or engineering teams from companies that went public via blank-check firms during the boom period but subsequently faced substantial devaluation.
Gabriel Caillaux, head of climate at General Atlantic, highlighted the evolving expectations of cleantech CEOs, emphasizing the growing demand for assistance in managing geopolitical risks, harnessing AI capabilities, scaling technologies, and ensuring sustainable business plans.
In a landscape characterized by increasing complexity, entrepreneurs and founders are becoming more discerning in selecting strategic partners, aligning with firms capable of navigating multifaceted challenges and fostering sustainable growth trajectories.
As private equity firms intensify their engagement with energy transition companies, their expanded oversight and strategic interventions aim to mitigate supply chain vulnerabilities, preserve valuations, and position portfolio companies for long-term success in an evolving energy landscape.