GIP makes first renewables investment

Global Infrastructure Partners (GIP) has agreed to buy a stake in a renewable power company, marking its third investment this year and its foray into the renewable energy sector.

The investment will give GIP a 40 percent convertible preferred equity interest in Terra-Gen Power Holdings, an owner and developer of renewable power plants across the US.

GIP is buying the interest from ArcLight Capital Partners, a Boston-based private equity firm that invests in energy and has raised $6.8 billion across four funds.

Financial details of the investment were not disclosed. A spokesperson for ArcLight declined to comment.

Terra-Gen has 831 megawatts of operational generation capacity across wind, solar and geothermal sources of energy. That figure is dwarfed by 5,000 megawatts of renewable projects under development, or projects are not yet operational.

Members of GIP’s management team  have previously told InfrastructureInvestor that the firm does not invest in typical greenfield, or new-development projects and seeks to devise investment structures that address this preference.

In its $700 million Ruby pipeline investment, for example, GIP bought convertible equity and secured debt interests in the project owner’s operational assets. Those interests can eventually convert into interest in the Ruby project once the 675-mile pipeline becomes operational.

A source with knowledge of the transaction said the Terra-Gen transaction said the deal was structured as a convertible interest in order to achieve the same benefit: GIP will gain exposure to the operating assets but will be able to convert its preferred equity into an interest in Terra-Gen’s development pipeline projects once they become operational.

The investment is the third transaction agreed by GIP this year. All three – Ruby, Terra-Gen and the $588 million investment in gas gathering joint venture with Chesapeake Midstream Partners – were disclosed in the last 100 days.

A fourth investment – the £1.5 billion (€1.6 billion; $2.4 billion) purchase of Gatwick Airport from the BAA – was announced last week and  is targeting a financial close in December.

If all the deals end up being successful, the fund could be more than 60 percent invested.

With its existing dry powder  being used up at a faster clip, market sources say GIP is already beginning to think about raising its second fund, though it is still early in the process since there is upwards of $2 billion yet to be spent from the first fund, which closed on $5.64 billion in May 2008.