Generate's capital markets head talks expansion, investor interest in distributed renewables
Generate just closed a USD 2bn capital raise to invest in distributed renewable markets, as well as other sectors such as mobility and water and wastewater.
This capital raise will allow the San Francisco-based asset manager to both enter into new developer partnerships from across the distributed space, explore different technologies and prep for geographical expansion into both Europe and Latin America.
To learn more about the big things on the horizon for Generate as well as the state of the distributed market and the current investor appetite, NPM spoke with Ed Bossange, the firm's Head of Capital Markets.
NPM: Can you give me a brief overview of Generate and what it's involved in within the renewables market?
Ed Bossange: We view ourselves as the leading sustainable infrastructure investment and operating platform. Battling climate change or addressing our natural resource system is, in our view, increasingly a distributed infrastructure game. Although there will be new innovation in technologies, solving the climate challenge is not really about new inventions; it's about scaling and deploying things that already exist and are proven to create value for all stakeholders. That's what we focus on.
NPM: There's a lot of M&A activity out there right now, is that something that Generate is involved in?
All of that M&A activity in on the table and interesting. We don't do greenfield development ourselves; instead we form partnerships with origination partners, which are project developers or technology companies like STEM, Plug Power, Cypress Creek or Nexamp, to create framework facilities together where they do what they do best and we own that infrastructure long-term. So, fundamentally what we do a lot of is project and portfolio acquisitions, but there are a lot of other avenues in the broader M&A market. As you have seen, the renewable market is really hot right now, so it's a good time to be active in the M&A market and I think we're positioned pretty well within that.
NPM: Was the capital raise something that was ongoing or was USD 2bn a target you were actively raising for in a fund raising period?
We're set up a little bit differently than others in the space in that we're not a fund. Instead, we're a C-corporation, permanently capitalized through corporate equity and debt raises that we put toward project ownership as well as everything we do. This was intentional from the beginning; we think that's the right way to own infrastructure given it is long lived and you want to build relationships with customers that we're going to be serving for 25 years or more.
As we deploy capital into new investments, we need to raise new capital. We initially went out with a USD 800m target size, but we had overwhelming demand from our existing investors, which is a really great sign, and we knew we had the opportunity pipeline demanding even more financial capacity. So we ended up expanding to USD 2bn to accommodate both this huge demand from existing investors and new investors. So, this raise exceeded our expectations and we're obviously very pleased with that.
NPM: What sectors has Generate been active in and where do you plan on expanding with this new influx of capital?
We primarily invest in three different sectors of the market: power, mobility and waste and water. That includes active areas today including community solar, energy efficiency, behind-the-meter battery storage portfolios, microgrids. As we think about expanding our activity, we're looking at combined solar + storage and potentially other technologies to create microgrids with more comprehensive power solutions; I think that's an area that's going to grow substantially. Hydrogen is also an area where we've been involved; that's a sector that has a lot of potential permutations.
NPM: I understand Generate recently invested some equity in Nexamp. What made them a good candidate for partnership?
We're always looking for partners that have similar mission and Nexamp is looking to offer decarbonization solutions and the economic benefits that come along with that. They're a partner that we started working with here in 2021 on community solar projects. We will look to expand that partnership over time to other assets.
NPM: Obviously you're seeing a lot of interest from the investment side. Are you seeing similar levels of interest on the developer side?
Absolutely. I think there's just a general increase of activity across the entire market. There are more developers in the market and the ones that are established are expanding their scope. We're also seeing more activity from the capital side. A lot of the more traditional infrastructure players are looking at distributed and the sectors that Generate has been active in for years and realizing that we're on to something and it's where the market is moving.
NPM: Can you talk more about your plans to expand to regions outside the US?
We're already active in the US and Canada, but we have a small team we're building out in Europe and are working on transactions in Latin America. We haven't announced anything there yet, but we expect that we'll be active there in the near term.
NPM: In these new areas, are you looking at investing in similar technologies as in the US and Canada, or is it different based on what is hot in those specific markets?
It's really the same areas that we're looking to invest in regardless of geography. It's leveraging the expertise and the underwriting we have for certain asset types already. When we think about the areas that we're focused in and where the market is going, we see a shift away from large centralized, inflexible, heavily regulated assets toward assets that are decentralized, decarbonized, democratized and digitized.
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