Green-Energy Investment Expected To Continue Flowing Under Trump

Rising electricity demand coupled with tax incentives for clean energy helped drive private-equity investments in the U.S. renewable-power sector in recent years, according to fund managers. Now, Trump's promises to cut incentives and place tariffs on renewable-energy equipment have raised concerns among investors.

Executives at some privateequity firms, however, expect the new administration to think twice before taking any action that could limit efforts to meet surging electricity demand, no matter its pronouncements on clean energy. Those executives point to the continuing manufacturing boom in the U.S. and the hundreds of billions of dollars that large technology companies plan to invest in artificial intelligence in coming years. Planned factories and Al-optimized data centers will only become reality if there is enough electricity to power them, the firms' leaders said.

"Trump is going to do everything possible to facilitate the development of electricity to support the build-out because the constraining factor is availability of electricity," said Doug Kimmelman, founder and senior partner at Energy Capital Partners. ECP, as the energy-infrastructure investor is known, recently formed a partnership with buyout giant KKR to invest $50 billion in new data centers and power-generation projects worldwide.

Electricity consumption in the U.S. is expected to reach a record of roughly 4.09 trillion kilowatt-hours this year and increase a further 1.9% in 2025, according to U.S. Energy Information Administration data. This year's projected consumption would be about 6% greater than the total consumed in 2020, the data show.

In recent years, photovoltaic solar- and wind-power projects accounted for the bulk of the nation's new generating capacity to meet that rising demand. Such projects have benefited both from tax incentives and lower costs compared with fossil-fuel-powered plants, said Peter Davidson, chief executive of Aligned Climate Capital. His New York investment firm buys community-solar projects in U.S. rural areas and backs clean-energy startups. "Over 80% of all new power generation is wind and solar, and that's because it's cheaper, it's cleaner and it's much quicker to build and install," he said.

More than a desire to protect the environment, lower costs are driving so-called red states, or those that tend to elect Republican leaders, to embrace renewable energy, private-equity managers said. In some other states, such as New renewable-energy Mexico, sources often support oil-and-gas operations, blurring the distinction between the types of energy, green or traditional, that benefit from the incentives, the managers said.

"What we've found is that demand for renewable energy outpaces the supply," said Anne Marie Denman, a cofounder and partner at Excelsior Energy Capital, a specialist private-equity firm in Excelsior, Minn., that backs solar developers. "It would be a shame if politics interfered with the good that renewable energy is bringing to all communities, including oil-and-gas communities," she said.

Excelsior-backed Lydian Energy is building two solar projects in Hobbs, N.M., that will power oil fields. The sites, expected to come online starting in 2026, have a combined design capacity of 400 megawatts and a $400 million price tag, Denman said.

Renewable-energy development in Hobbs is part of an effort by Lea County, located in the oil-rich Permian Basin, to diversify its economy and ensure that local oil-and-gas companies have enough power for their operations, said Vance Nobe, founder and CEO of solar developer Akari Energy. Houston-based Akari is doing the groundwork, including securing permits and connections to the regional transmission grid, for Lydian's projects.

"They want multiple sources of power because they have such a high demand there," Nobe said of local oil-and-gas companies. He noted that Lea County ranks No. 1 in the U.S. for oil production and the sector drives its economy. "If oiland-gas production were to go up, they would need a lot more electricity to run their pump jacks," he said.

The declining cost of renewable energy means tax incentives are less vital to the industry, Excelsior's Denman said. Still, eliminating incentives would likely raise consumers' electric rates and divert investors seeking tax benefits, she said. That would hurt the economy, she said, adding that fossil-fuel investors also benefit from tax breaks.

"The economics of renewable energy make sense without tax credits, but the cost of the energy will go up if the tax credits go down," she said. "We think that tax-credit incentives are helpful to accelerate the adoption of clean energy alongside oil and gas, which also receives tax benefits."