Whatever the US ‘green energy’ bill looks like after it passes the Senate, the importance of gas will be much greater in the medium-term as the “intermittency” problems of solar and wind sources are dealt with, according to the managing partner of a US power industry private equity manager with several Australian clients.

John Buehler, an original employee of Energy Investors Funds (EIF) when it launched 20 years ago, said his firm’s US Power Fund No.4, which has just opened to investors, was likely to contain more gas assets than any of its predecessors.

“Gas will become the intermittency fuel of choice,” Buehler said, pointing to the continuing inability of solar and wind sources to produce enough energy during peak periods (ie during the working day) until technologies for short-term storage of that energy are improved.

Burning natural gas still produces over half the greenhouse gas emissions of coal or oil, but Buehler said it was still likely to be a winner under the energy Bill’s proposed cap-and-trade system, “to the extent that every new megawatt of gas takes a megawatt of coal off-line”.

EIF is one of the world’s largest investors in landfill gas, which Buehler described as a “twofer” because the methane produced could either be sold directly on-site to the relevant local utility, or transmitted to buyers further afield.

“If there’s one thing you can be sure of, it’s that Americans will continue to produce a lot of garbage,” he said in favour of the landfill source.

Coal-generated power is unlikely to have much of a presence in the fund. 

“You wouldn’t invest in coal at the moment, at least until you know what the price of carbon emissions are going to be, and the technologies for sequestration and gassification become proven,” Buehler said. 

EIF has raised nearly $1 billion out of Australia since 2005, with Victorian Funds Management Corporation’s stake in US Power Fund III thought to be the largest single allocation. QIC, Westscheme and MTAA Super are also investors with EIF.

Buehler said EIF’s new fund would retain its conservative financing policy – a debt:equity ratio of roughly 2:1 – and would continue to invest only in projects where an “offtake agreement” (ie a buyer for the energy being generated or transmitted) had been signed up in advance.

EIF funds are 10-year closed end structures which target 20 per cent annualised returns after fees but before tax.

Leave a comment