First Reserve inks first infrastructure deal

The firm will seed a joint venture that could bring as much as $1.5bn in purchasing power to solar power projects.

The infrastructure group at First Reserve Corporation is committing equity to a joint venture which will fund investments in the solar power sector, marking the debut deal for the energy-focused private equity firm’s two-year old infrastructure team.

First Reserve and SunEdison, a solar energy developer, will jointly contribute $167 million in initial equity toward the yet-unnamed joint venture, which will be majority-owned by First Reserve. When combined with debt, that equity is expected to have an initial purchasing power of $825 million, First Reserve said in a statement.

“This provides scale to SunEdison and scale to us, frankly, in our investment goals,” said Mark Florian, First Reserve’s head of infrastructure. He added that with additional equity of $150 million on top of the $167 million, the joint venture could have a total purchasing power of $1.5 billion.

The money would be spent on solar energy projects developed by SunEdison, according to the statement.

Scale, or the ability to make large investments, is important in the solar energy sector because most investment opportunities that come to market tend to be small. “We see a lot of individual projects that people want to find investors for,” Florian said, “and they’re small, one-off here-and-there projects that are available to invest in.” He estimates the average investment opportunity to be about $5 to $15 million.

Smaller investors, like Toronto-based Bridgepoint Group, which last week began raising a fund targeting between $5 million to $15 million to invest in early-stage energy and social infrastructure projects, might find such a size range compelling.  It is unlikely, though, to spark the interest of much larger investors like First Reserve.

Additionally, as an infrastructure investor, Florian is not interested in taking on development and construction risks associated with solar projects. Those risks will be transferred to SunEdison, which “is going to do what it does extremely well which is develop and construct the projects,” Florian said. First Reserve, in turn, will lead the project financing efforts for the projects, which will sell their electricity according to long-term electricity purchase agreements.

SunEdison president Carlos Domenach said the joint venture was a “unique” structure for his industry.

“There are very few renewable [energy investment] structures that I know of where two parties come together and have a strategy and a programme to build and scale projects over time,” Domenach said.

The two firms will target the United States, Italy, Spain and Canada for their investments.

Shares of MEMC Electronic Materials, the parent company of SunEdison, traded at around $10.56 in early afternoon trading on the New York Stock Exchange, down 2.2 percent for the session.