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PAF Insights

Energy Transition


Private Equity Investment in the Global Clean Economy

Executive Overview

Executive Overview

Green Capex will be the dominant driver of global PE investment

  • Net Zero targets have emerged as a useful tool to indicate a country, company or even asset manager’s commitment to climate action, uniquely focused on carbon emissions or equivalents

  • Around $6 Tn of annual investment is required in through to 2030 to meet Net Zero, Clean Water and Infrastructure objectives, up from legacy $3.2 Tn

  • China, US and Europe represent more than half of required investment for Net Zero by 2050 pathway, consistent with weighting of overall emissions

  • Meeting the Net Zero pathway objectives involves not only the expansion of clean power plant capacity, but also of transmission lines, batteries, transport and associated charging infrastructure, and carbon capture

Challenging near-term outlook for private equity

  • After a record-breaking 2021, activity slowed in 2022 and 2023, mostly driven by economic uncertainty causing investors to rethink capital allocations

  • The lag effect of expansionary fiscal policy in response to the COVID-19 crisis, as well as the energy crisis caused by the Russia-Ukraine war, has resulted in rampant inflation throughout many parts of the world

  • Resulting interest rate hikes by central banks globally have increased borrowing costs and reduced the availability of debt, leading to rapidly declining public and private market valuations

  • Despite these headwinds, strong growth is forecasted for the global private equity market, with assets under management growing at a 10.2% CAGR from 2021 to reach $7.6 tn in 2027

    Challenging fundraising market and strategic shift amongst GPs

    • Private Equity funds raised $405bn in the 9 months to to Q3-22 ($540bn annualized), marking a steep decline from a 2021 high of $696bn

    • Declining public market valuations and the resulting denominator effect are curbing LPs’ appetite for new capital commitments, creating a more challenging fundraising environment for GPs

    • Due to a higher-for-longer interest rate environment, we expect to see an increased use of extended funds and continuation vehicles in the short-term, as GPs look to delay exits until more favourable market conditions prevail

    • In the face of a weaker exit environment, GPs are increasingly implementing active asset management strategies as a means of value creation

    Renewables continues to dominate energy investment

    • Investment in renewable energy reached a historic high in 2022 ($495bn), approaching half a trillion dollars for the first time, the majority of which was invested in solar PV (69%)

    • Renewable energy continues to dominate energy private equity fundraising, making up 44% of total funds raised in the 9 months to Q3-22, compared to 28% for both conventional energy and mixed funds

    • However, this marks a steep decline from 2021 when renewables made up 69% of energy funds raised, largely driven by increasing oil and gas prices in 2022 which have made conventional energy a more attractive investment proposition

    • Although governments have been effective at scaling up the renewable energy rollout, energy security has become a key focus and may slow the phase-out of hydrocarbons