Private Equity Funds in Renewable Energy

There are two main purposes of this article. The first purpose is to discuss a private equity company involved in making investments in renewable energy sector. And the second aim of this article is to discuss the investment of other private equity houses on renewable energy sector. We will discuss this issue in accordance with Daniel Schafer’s article ‘Winds of Change’. The company selected to fulfill the purpose of this article is HgCapital. HgCapital is a private equity firm who is engaged in buying out of small, medium and large size companies all over Europe.

The firm makes investment in all sorts of industries but it has a specialized fund for renewable energy. It invests in five sectors: Industrials, Health care, TMT, Services and Renewable energy. The company was established in 1985 by the name of Mercury Private Equity. It is headquartered in London, United Kingdom. HgCapital has total assets of around $5.2 Billion. It has 80 Employees in its offices in Germany and United Kingdom.

Discussion

HgCapital was the first UK Private Equity fund that involved in investing in renewable energy sector. Today HgCapital is considered to be the largest renewable fund player in Europe in terms of the amount of capital it raised. It established its first renewable energy investment team in 2004 and made its first investment in 2006 after a thorough research of the sector. The Team initially invested in utility renewable project in Western Europe through technologies such as solar, hydro, and onshore wind. For that purpose the company uses ‘fund investment approach for infrastructures’. The company focuses on small hydro and wind projects which are independent of government support. In Scandinavia, the company has become the major owner and player of onshore wind farms.

The renewable energy market is the rapid and fastest growing segment in Europe. It is a potential investment opportunity for the investors. It requires considerable capital investment. Economies of scale and advancement in technology have increased the cost competitiveness of the sector. As a response to these market drivers the company has increased its focus on the use of efficient and effective technologies and the best possible resource sites. This results in lower cost to consumers. In order to establish strategic value and to lower the intrinsic cost the company has decided to invest in industrial scale.

The article by Daniel Schafer’s ‘Winds of Change’ emphasized on the growing interest of private equity funds investment in renewable energy sector. According to the author, Daniel, KKR and Blackstone like HgCapital have discovered a new investment opportunity. As mentioned earlier renewable energy is the fastest growing sector in Europe. Hence it provides attractive and potential investment opportunities for many of the private equity funds. There were overall 70 renewable energy investments by private equity funds in between 2004 and 2006. However the number increased to 170 Investment during 2008.

There has been a lot of activity during this year. KKR, which is a United States based private equity fund, made its first investment in the renewable sector. The very same day Axa Private Equity becomes the fourth largest wind farm operator in France. After a month, another UK based private equity firm by the name of Bridgepoint, invested a sum in wind farms of Spain. In August the same year, Blackstone, rival of KKR invested €2.5 billion for constructing Germany two offshore wind farms.

According to the author one major reason why the renewable sector is a hot spot for investment is because it is immune and least affected by economic cycles. Wind and solar energy does not bear the same demand risk as gas, coal and nuclear power. Even banks are willing to lend for making investments in renewable projects. Renewable energy has become the major power generation. Solar energy is in number second but still behind in terms of cost. In future the author believes that further investment will made for the supply chain of that sector.

Conclusion

The article discusses a private equity company involved in making investments in renewable energy sector. The company selected for this purpose is HgCapital. The firm makes investment in all sorts of industries but it has a specialized fund for renewable energy. It established its first renewable investment team in 2004 and made its first investment in 2006 after a thorough research of the sector.

The article also discusses Daniel Schafer’s article ‘Winds of Change’. The article is focused on the investment of private equity houses on renewable energy sector. The private equity houses discussed in this article are KKR, Black stone, Axa, and Bridgestone. Renewable energy is the fastest growing sector in Europe. Hence it provides attractive and potential investment opportunities for many of the private equity funds. According to author, one major reason why renewable energy sector is a hot spot for investment is because it is immune and least affected by economic cycles. Being the fastest growing sector in Europe it provides an attractive and potential investment opportunity to private equity fund managers and companies.

Is Your Business Overweight? How to Determine the Financial Health of Your Business

It’s common for small business owners to measure their financial health based on their income statement or bank account balance and deem their business “fit” if the bottom line looks good. To reveal why this approach can be deceptive, let’s apply a dieting metaphor.

Only looking at the bottom line is the equivalent of “sucking it in” when you look in the mirror. Sure, it looks like you’ve lost some weight, but what happens when you exhale? You might appear skinny for a moment, but that version of the situation isn’t accurate.

In terms of your business’ health, the balance sheet is the “real” you. Think of the income statement (also called the profit and loss statement) as your diet log. It tells you how well you did in a specific time period—last week, last month, or last quarter. We all know that there are good weeks and bad weeks on a diet. If you only look at one week or month, are you getting a true picture of your overall health? Of course not.

The balance sheet, on the other hand, is based on everything you’ve ever done. In our diet metaphor, it accounts for how much you’ve exercised and what you’ve eaten over your entire lifetime. The sum of all that information is what you see when you stop sucking it in.

To understand this metaphor, you need to understand what the balance sheet is and how it relates to the income statement. Your income statement contains information about what has occurred in the current period. Revenue, cost of goods sold and expenses are some of the account types found on the income statement.

To get an accurate picture of what’s happening in your business, you must adhere to the matching principle. That means you record expenses and cost of goods sold when you have earned the revenue that they are related to (if an expense is not related to revenue, you record it during the period it is used). The balance sheet accounts hold these revenue and expense items until the period in which they are earned or used. We use accounts such as prepaid insurance, customer deposits, and accrued payroll to classify these things on the balance sheet.

Income statement accounts only reflect transactions in the current accounting period. At the end of the period, the net profit or loss is moved to the equity section of your balance sheet (to retained earnings). This means that the balance sheet reflects all prior period revenue, cost of goods sold, and expenses in the form of retained earnings. The equity section also shows how much you’ve invested in and drawn out of your business. The equity section, therefore, shows what the company is worth to you.

So, how do you know if your business is “over weight”? Take a look at your debt to equity ratio (total liabilities divided by total equity). Compare that to your industry average and you’ll have a pretty good indicator of your business’ weight. Too much debt and not enough equity means your business is, in fact, overweight—even if your current period income statement looks healthy and you have money in the bank. Because everything shows up on the balance sheet, you can rely on it to depict the financial health of your business.