RPT-DEALTALK-Wall Street firms eye "green" banking
(Repeats July 16 story with no change to headline or text)
SAN FRANCISCO, July 16 (Reuters) - Wall Street has always followed the money, but this time its weightiest denizens -- the big investment banks -- are eyeing a new kind of green.
The billions of dollars being poured into clean energy and other "green" technologies amid global fears of soaring commodity prices, dwindling supplies of traditional energy and climate change have created new investment banking opportunities, from arranging the financing for solar power plants to taking geothermal companies public.
The roiling credit markets didn't affect global investments in clean energy last year -- they grew 41 percent in 2007 to $117 billion, according to New Energy Finance, a research firm. And the firm predicted that 2008 is going to be another "banner" year.
In response, some big banks, including Goldman Sachs (GS.N), Morgan Stanley (MS.N), Credit Suisse (CSGN.VX), Lehman Brothers LEH.N and Merrill Lynch MER.N, have recently begun creating investment banking groups dedicated to scouting out these so-called "cleantech" opportunities.
Tim Kingston, Goldman's head of power and renewable energy investment banking, said it's a "strategic priority" for Wall Street's biggest firm by market value. Other banks are stepping up their efforts -- Lehman and Merrill created formal clean technology banking groups earlier this year.
The value of global renewable energy deals was up 142 percent as of July 14, from the same time a year ago, compared with a 32 percent drop in overall M&A deal value, according to data provided by Dealogic for Reuters. Also, while the number of renewable energy deals increased 85 percent during the same period, there was only a 6-percent increase in the overall number of deals.
"This is all about driving down the cost of alternative sources of energy, particularly with oil prices at $140 a barrel," said Bryce Lee, who co-heads Credit Suisse's alternative energy banking practice. "This is the biggest issue and opportunity globally right now."
Bankers said regulatory changes also have created more incentives to invest in alternative energy, especially in Europe.
Explosive energy demand from emerging economies like China and Brazil, a fervent push by venture capitalists to fund clean technologies and -- within the United States -- a search for ways to reduce dependence on foreign oil, are other factors driving investment, bankers said.
SOLAR, WIND, EFFICIENCY: HOT STUFF FOR BANKS
Although "cleantech" is an umbrella term that refers to various environmentally-friendly technologies, such as solar and wind electricity, better car batteries, sustainable building materials or ways to make power grids smarter, bankers said they are mostly focusing on alternative energy and efficiency technologies.
That could be because solar, wind and biofuels industries are more mature and carry less risk than early-stage cleantech, according to Adam Grosser, a general partner at venture capital firm Foundation Capital.
Kevin Genieser, who heads Morgan Stanley's clean technology banking practice, said wind energy is no longer considered nascent and alternative, but rather, a mainstream power resource, with solar energy on a similar path.
Grosser said Wall Street is curious about emerging technologies but tends to focus on the "low-hanging fruit," such as taking some solar and wind companies public. Foundation backed EnerNOC Inc(ENOC.O), an energy efficiency company that went public last year.
Given the focus on energy and technology, firms have roped in their technology, power or energy investment bankers to spearhead their cleantech banking units. Lehman's effort, for example, is a joint venture between the firm's technology and power investment banking groups.
Todd Guenther, a power banker who co-heads Lehman's Alternative Energy banking group with Amy Smith, a technology and solar banker, said they also collaborate with bankers from other disciplines depending on the nature of the deal.
"It's not effective for someone who covers wind turbines to then turn around and figure out whether a geothermal project in Nevada is a good opportunity," Guenther said.
For this reason, UBS (UBSN.VX) decided not to dedicate one group to clean energy, said Steve Trauber, global head of energy. Instead, clean technology projects are assigned to divisions based on the industry -- biofuels and ethanol under oil and gas, solar under utilities, and so on, he said.
Many of these projects also require hundreds of millions of dollars in capital, often for non-traditional uses -- bringing venture capitalists and banks together, similar to the way they collaborate on traditional technology deals.
Also, the relationships that banks have with private equity firms, hedge funds and global energy investors help cleantech companies access larger amounts of equity than what venture capital firms typically provide.
Parker Weil, who co-heads the Americas Clean Energy -- or "ACE" -- Group at Merrill, said the financing opportunity around certain cleantech projects such as nuclear energy plants could be "staggering."
Using a back-of-the-envelope calculation, he estimated it could cost between $6 billion and $8 billion to build a single, 1000-megawatt nuclear power plant -- way above the average of $11 million per cleantech deal that U.S. venture capitalists invested in last year.
Banks also are arranging more non-traditional financing, seeking to become one-stop shops providing services over the life cyle of a clean energy company.
At Lehman, Smith said project finance advisory, tax equity investments, commodity hedging and principal investing, were key areas of focus, in addition to the more traditional IPO offerings and mergers advisory.
"There is a sense of real change and innovation that is occurring, perhaps with some euphoria," said Credit Suisse's Lee. "There isn't a faster-moving industry right now." (Editing by Carol Bishopric)
- Tweet this
- Share this
- Digg this