INTERVIEW: Acadia Infrastructure founder discusses opportunities in capital markets dislocation for clean energy projects

Acadia Infrastructure Capital saw a significant and multifaceted dislocation in the capital markets for clean energy when it launched in late 2023.

The economics of the project lifecycle for developers with unimaginable pipelines have become even more challenging since then, creating a much bigger opportunity.

In an interview with NPM Acadia, founder and longtime energy investor Tim Short said the day is coming down the road when Acadia will raise a third-party fund. However, as for now, this market dislocation has allowed it to attract a select group of investors to invest in different structured equity solutions.

The two deals announced earlier this month illustrate the variety of opportunities that Arcadia is looking into. This included sourcing preferred equity as part of an overall capital markets package Matrix Renewables used to support its Stillhouse Solar project.

More recently, Acadia launched a Climate and Communities Investment Coalition (CCIC), to facilitate 5 GW of renewable projects over the next five years. Acadia enlisted Microsoft as an anchor member of the CCIC and is in talks to add additional potential member companies.

“Over a five-year period, there has been a massive dislocation in the market for project capital that traditional infrastructure funds cannot always provide,” said Short, a veteran power investor with stops at both Capital Dynamics and KKR, adding that this been triggered by a whole host of factors ranging from an unsettled cost of equity capital for highly contracted projects to supply chain backlogs and newer opportunities created by the Inflation Reduction Act (IRA).

“Hundreds of gigawatts of supposed developer pipelines acquired during 2019 to 2022 were underwritten with tight financial and equipment cost assumptions, but the market went the other way, particularly with equity needs at the start of construction,” said Short, adding that this has opened the doors to different forms of structured equity.

“We have a select group of investors, slightly more active institutions, who want more scale and exposure to the middle market,” added Short.

This was the case with Stillhouse Solar. Matrix, is supported by TPG Rise Climate, and has built and energized projects globally. Yet in the case of Stillhouse Solar, a 210 MW project in Texas, Matrix still found itself with a gap in the capital stack. It secured project finance, while Acadia sourced preferred equity from global investors.

Short couldn’t talk much more about the CCIC at present but described the concept as similar in the sense that it would be injecting late-stage capital into projects helping achieve that 5 GW target.

“There is a significant pipeline of projects coming out of a difficult phase from a cost perspective, where structured equity solutions can play a key role,” said Short.

Another area is the tax credit transfer market. The IRA introduced the ability to transfer tax credits. This has allowed the overall market to grow to roughly USD 45bn, split between traditional tax equity partnerships and the transfers.

This has created a variety of opportunities where Acadia can deploy capital, such as investing in structures often referred to as hybrid tax equity, as alternatives to IRA-drive structures from traditional tax equity banks, who are now making use of transferability via, s-called T-flips.

*This story was originally published exclusively for NPM subscribers.

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