Renewables Investor Ecofin Turns to Gas and Utility Plays

From Institutional Investor:

Fossil fuel prices have tumbled since the global financial crisis began, making the green-energy sector far less attractive to investors, who can now turn a handsome profit quickly by investing in traditional power sources. Ecofin, a London-based alternative-energy investment management firm, is no exception.

Founded in 1992, Ecofin has stepped outside its core business by investing some $40 million in U.S. shale gas. More significantly, the firm — whose CIO, Bernard Lambilliotte, recently waxed poetic about “creating a carbon-free world” — plans to launch a fixed-income, high-yield investment trust in January that will target U.S. gas, utility and power companies.

The postcrisis climate has proved frustrating for investors in renewable energy, particularly wind. Even for a $2.2 billion veteran like Ecofin, it’s tough to find worthwhile plays.

Before the crisis renewable assets were highly prized, explains David Kotler, managing director on the oil and gas team at the London office of New York–based asset management and financial advisory firm Lazard. But today, Kotler notes, there are many stranded wind projects. “Where is the money going to come from?” he asks. “The returns that investors went for are not going to be realized.”

Patrick Hummel, an Opfikon, Switzerland–based renewable energy markets analyst at UBS, agrees. “The wind sector as a substitute for utility companies is not a very compelling business case right now,” he says, adding that there are cheaper alternatives, such as gas and coal.

Still, Ecofin hasn’t given up on renewable energy. The firm is hedging its bets that fossil fuel prices will eventually rise again — a view strengthened by oil’s climb above $87 per barrel in early November — by launching a new equity fund dedicated to wind and solar technology, slated to open in the first quarter of 2011.

This long-short offering will focus on the U.S. rather than Europe, which Lambilliotte calls a difficult place for alternative and renewable investments because “the regulatory environment is not clear.” He cites Germany’s windfall taxes on nuclear power plants and a reduction in government subsidies to the sector in Spain....MORE