Tuesday, December 27, 2016

Energy Sector Investment: Overcoming Due Diligence Obstacles

According to the United Nations Environment Program (UNEP), total investment in renewable energy in 2015 was USD$329 billion.  This topped the record set in 2011, when UNEP measured total investment at USD$319 billion.  As much as 60% of the total involved asset financing usually for new construction and equipment.  Most of those investments involved debt instruments.  The balance of the renewal energy investments were composed of a mix of private equity, venture capital and other capital infusions.  Equity investment in public companies represented only 3.9% of the total or $12.8 billion.
Investors of all stripes are often put off from stakes in energy projects for lack of transparency.  Perceived risk is always higher when faced with an informational ‘black hole’.  Furthermore, it is sometimes difficult to simply find an investment opportunity. 

Sponsored by the Group of Twenty nations, the Global Infrastructure Hub is intended as an informational resource for investor interested in infrastructure projects.  The projects are typically sponsored by government entities or are public-private partnerships.  Project types range beyond strictly energy production to include waste collection, desalination and rail.  Yet even the latter have an impact on energy use and efficiency.  The Hub does right by its users by making available a laundry list of potential risks in particular project types, giving investors a check list of sorts to methodically scrutinize investment alternatives.
In late 2015, the Global Environment Facility (GEF) pledged USD$2 million to launch the Climate Aggregation Platform (CAP).  The platform is to standardize and bundle smaller renewable energy projects into more accessible investment vehicles for large institutional investors who need scale to justify investments.  CAP was to receive funding from a mix of partners, including the Inter-American Development Bank.   In early 2016, GEF issued requests for proposals to get the platform started, but since then has been quiet about whether the platform is ready for business.  The platform could be a critical element in capturing more capital from the private sector.   

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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