Private equity firms and asset managers are seizing on opportunities to finance the energy transition and electrification of the economy.

Adi Blum, managing director and senior investment professional for the Global Energy & Power infrastructure team at BlackRock Inc., said there is "a tremendous need for investment in infrastructure," driven by economywide electrification and population growth.

"The world needs to reduce carbon emissions by almost 2 billion tonnes each year to get to net-zero by 2050, so it's a massive undertaking as far as massive investment," Blum said on a virtual panel at the Global Power Markets Conference hosted by S&P Global Platts on April 13-14. "So, this really requires developing new technologies or, in many cases, we have the technology, but it's too expensive to do it in a green manner."

While BlackRock has been at the forefront of sustainable investing and the push toward the energy transition, Blum said the world's largest asset manager will continue to invest in natural gas.

"We really see gas serving as a bridge throughout the energy transition," Blum said.

David Nanus, co-head of private equity at LS Power Group, said the company's investment strategy is focused on balancing decarbonization and reliability.

"We're going to have decarbonization. We're accelerating toward that," Nanus said. "So, how can we invest in a way that will facilitate that but without compromising reliability?"

'Devil is in the details'

Still, some asset managers remain hesitant to invest in certain zero-carbon technologies such as stand-alone battery storage.

"We aren't looking to essentially just take a forward view on the opportunity to arbitrage highly volatile power markets with a battery. It's not really the business that we're in," Martin Torres, managing director and head of the Americas for the Renewable Power Group at BlackRock Real Assets, said at the Global Power Markets Conference. "Therefore, when you dig into the details of some of the contracts that have been put in place around stand-alone battery opportunities, the devil is in the details just to determine how much certainty you can take in terms of recoupment of capital and a return on your investment."

Torres, speaking on a virtual panel discussing global power market investment opportunities, noted that the challenge with investing in stand-alone battery storage is more around contract structure than price or performance.

"We've certainly pursued some of the few opportunities where we've found very robust contracts," Torres said. "Not surprisingly, many others in the market were hot in pursuit of those opportunities as well."

BlackRock, however, has invested and will continue to invest in batteries paired with solar generation, Torres said. In addition, the firm sees opportunities in the electric vehicle market.

"EV charging infrastructure is a segment of the market that we see poised for rapid growth," Torres said.

LS Power also is betting on the EV market and acquired EVgo Services LLC in early 2020, which is in the process of going public through a merger with a special purpose acquisition company known as Climate Change Crisis Real Impact I Acquisition Corp.

"It's sort of part and parcel of what we're doing," Nanus said, adding that the EV market is "one of these areas in need of innovation on the grid and in the energy system."

"EVgo is a company that's got a lot of growth ahead of it and was public company-ready, so we were able to find the right partner and execute the transaction," Nanus said.

While also touting the investment potential in the electric vehicle market for batteries, The Rise Fund's Rick Needham said the fund has not "really seen the economics really pencil out yet for a lot of the stand-alone storage."

Justin DeAngelis, a partner on the Sustainable Infrastructure team at Denham Capital, said that when it comes to battery storage, "we think there's lots of opportunities, but it's not as broad as renewables."

"It's a very market-specific, could be even micro-specific, opportunity," DeAngelis said.

'Critical' decarbonization tool?

On a separate panel, Christina Scalzo, vice president of corporate development and strategy at Vistra Corp., touted the company's 300-MW Moss Landing Energy Storage Facility as "critical infrastructure" for California as it seeks to decarbonize and preserve reliability.

Vistra plans to expand its battery storage complex at the site of the Moss Landing combined-cycle gas plant in Monterey County, Calif., to 1,500 MW.

"We're doing the same thing, albeit with a slightly different set of parameters and objectives, in Texas at our Decordova gas plant," Scalzo said.

Vistra is planning to build a 260-MW energy storage facility at the site of subsidiary Luminant Generation Co. LLC's 347-MW natural gas plant in Hood County, Texas, according to S&P Global Market Intelligence data and the company's website. The Decordova Energy Storage Facility is expected to come online in February 2022.

"I don't think about gas plants today as just gas plants. I look at them as opportunities for new uses," Scalzo said.

"So, I think there is a great number of opportunities for [efficient] gas assets ... to continue to have useful life in and of themselves but also to transition, whether it's with battery storage or perhaps even, if the land is there, solar assets or otherwise," Scalzo said. "Beyond providing continued reliable power to the grid, affordable power, it will also help with the job space, the communities, as we make this transition from a predominantly fossil-supplied grid into the future where we'll have much more renewables."

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