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Carlyle Plots Expansion in Energy

On the back of its first wind deal, Carlyle plans to branch out into renewables — but not for ESG reasons.

The Carlyle Group plans to use its recent acquisition of a wind portfolio as a spring board for a broad slate of future investments in renewable energy projects, including solar.

This week Carlyle — through its newly created affiliate Zephyr Wind Energy — said it would purchase six wind farms in Northern and Western New York and an operations platform from Noble Environmental Power. It’s the private equity firm’s first renewable energy deal. The farms produce almost one-third of New York state’s wind power.

“We are looking at doing more deals for operating platforms in renewables as well as constructing brand new wind projects,” said Matt O’Connor, managing director and head of Carlyle Power Partners, in an interview.

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Carlyle is not investing at the sector for environmental, social, and governance reasons.O’Connor is looking for transactions that will generate returns as high as any other private equity deal (although many ESG investors are also looking for market-rate returns). The wind farms that Carlyle has acquired, for example, don’t have long-term contracts or hedging arrangements. The power that is generated is sold in the wholesale market. O’Connor said the firm is well positioned for this as it has a commercial team that has been managing the so-called merchant risk for the natural gas-fired assets Carlyle Power Partners already owns.

Carlyle also wanted to broaden Carlyle Power Partners’ holdings with the Noble acquisition. “We’ve invested in natural gas-fired assets from the beginning of the fund, and we wanted to diversify,” said O’Connor. “But until now we haven’t been able to find the right transaction that fits our risk and return profile.” 

To expand, Carlyle will use the operations platform acquired from Noble as well as a company it bought in 2012 called Cogentrix, which operates and manages the fund’s power assets.

It took Carlyle years to find the type of renewable project it wanted. Most opportunities in wind have long-term contracts or hedging arrangements, explains O’Connor. These are low-risk assets in demand by insurance and infrastructure investors.

“The Noble transaction was being marketed without hedges or contracts, which requires a higher risk appetite,” O’Connor said. “We take that type of risk in our business every day, and have the capabilities in Cogentrix to manage the risk.”

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