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Clean energy is a problem. In the face of enormous capital needs, rising interest rates and erosion of political support, Green Enterprises discovers that public stock markets are not as friendly as they used to be. Salvation comes from a rare place: a keen lowbow private equity group.
Among these unlikely do-gooders are Apollo, KKR, Blackstone and Brookfield. Everyone is becoming lenders to leaning towards a expanding market for private credit. For example, Apollo says it will invest $100 billion in clean energy and climate investments by 2030. It’s no wonder. Power and energy businesses have attractive qualities for long-term lenders. Not only are they capital-intensive, they usually generate stable and predictable cash flows.
For borrowers, private capital can be expensive and restrictive, in contrast to traded bonds and bank loans. But they can’t say much these days. When the open market becomes unreliable, the universe master with a sufficient supply of capital is the next best.
Consider the Hinckley Point nuclear facility in the UK. Last week, Apollo said it would lend up to £4.5 billion on an unsecured basis to French utility EDF for the project. The money costs less than 7%, the debt is rated as an investment grade, allowing Apollo’s own life insurance company to hold a portion of it. Public debt may be a bit cheaper for EDFs, but Apollo can offer a variety of customized features, including flexible drawing of money to EDFs when needed.
Things become more complicated when borrowers are in the miserable straits. Sunnova, a US residential rooftop solar operator, recently filed for bankruptcy. KKR issued a $185 million emergency loan to Sunnova in March, with a high 15% interest rate. The bankruptcy process is now a complicated battle with KKR, Oaktree Capital and Apollo lender SP Atlas.
Meanwhile, Apollo also sits in the center of another clean energy explosion. WolfSpeed, which manufactures semiconductors for electric vehicles, owes $1.5 billion to Apollo. This costs 16% per year. The obligations, originally lent in 2023, give Apollo a variety of rights and influence over the company’s operations. For comparison, WolfSpeed borrowed $3 billion by issuing a convertible bond market that was published several years ago, paying a coupon of less than 2%, with few strings.
Wall Street businesses like to characterize these investments as noble and commercially sound. However, it is inevitable that some people will prove incongruous. Technology is insufficient, government support is declining, flowing, and forecasting will not halt. When that happens, private capital groups go back to doing their best. Their own investors don’t expect anything less.
sujeet.indap@ft.com
