Specialist Investor NGP Raises $700 Million for Clean-Energy Fund
NGP Energy, which is based in Dallas, raised $1.23 billion across two funds.
By Luis Garcia | May 22, 2023 6:30 am ET
Specialist investment firm NGP Energy Capital Management has raised $1.23 billion across two funds to make new bets in both the traditional and clean-energy sectors.
The Dallas firm wrapped up its latest energy-transition fund, NGP ETP IV LP, with $700 million in commitments. NGP also said it recently closed on $527 million for its second fund to invest in mineral rights and royalties in oil and gas, NGP Royalty Partners II LP. The effort collected 65%more than the $320 million the firm banked for a predecessor fund in 2021.
More than 30 investors backed the clean-energy fund, said NGP Managing Partner Chris Carter. One participant, the Kentucky Teachers’ Retirement System, pledged as much as $30 million, according to the WSJ Pro Private Equity LP Commitments database.
The private-equity firm, which originally focused on oil and gas, began also investing in clean-energy businesses more than 15 years ago through its NGP Energy Technology Partners strategy. The new ETP fund is the firm’s latest for a growth strategy that backs equipment and services providers in the clean-energy industry as well as developers of sustainable infrastructure, Carter said.
So far, NGP has invested roughly a fifth of the new fund across six deals, including backing battery-technology company Form Energy, fleet charging infrastructure developer EV Realty and geothermal systems company Dandelion Energy, Carter said. The firm focuses on four clean-energy segments: renewable power sources, electrification, energy efficiency and carbon management, he said.
“The fund strategy is a combination of growth-equity investments in existing companies as well as a back-and-build model in the sustainable real assets category,” Carter said. He added that a decline in asset prices during the past year or so has made new investment opportunities more attractive.
“We’re seeing more reasonable valuations and the ability to negotiate attractive terms,” he said. “At the same time, the companies that we have invested in are benefiting from the tailwinds of the [Inflation Reduction Act].” The law enacted last year extended tax incentives for solar and wind power while creating new financial support for other clean-energy technologies.
A rising number of investment firms focused on the sector target supply-chain businesses as an abundance of capital depresses returns from backing power-generating operations, fund managers said. Private-capital firms raised $28.76 billion for clean-energy technology funds during this year’s first quarter, nearly 26% more than the $22.85 billion collected in the year-earlier period, according to research provider Preqin.
“There are so many new entrants to this space—it’s so popular,” said Philip Deutch, an NGP partner who leads the firm’s clean-energy growth strategy. He added, however, that relatively few firms make growth investments in the sector, which typically involve minority stakes. “It’s an underserved area,” he said.
While clean energy draws a lot of interest, traditional energy still attracts investors as well. NGP’s royalty and mineral rights investments give participants a share of well revenue without the burden of production costs.
“It’s an example of investors’ desire to find opportunities with lower risk [and] cash-yielding attributes,” Carter said.