As global infrastructure fundraising recovers from a downturn in 2023, private equity firms are seeking to capitalize on US electric load growth tied to datacenters.
Brookfield Asset Management Ltd. and BlackRock Inc. have inked agreements with large tech companies such as Microsoft Corp. to fund and build energy infrastructure, while other alternative asset managers are facilitating power generation and grid connections for hyperscalers through portfolio companies and purpose-built joint ventures, according to private equity firms, project developers and industry observers.
Infrastructure funds raised $51 billion during the first half of 2024, more than double than in the same period in 2023, management consultancy McKinsey & Co. wrote in a Sept. 30 report, noting that "few scaled infrastructure managers held final closes in 2023."
"The fundraising you've seen come roaring back for renewables infrastructure funds, it's like 2021 again in that market, where you're just seeing large raises, large deployments," Peter Gardett, head of energy transition research at financial services platform Karbone, said in an interview.
Macquarie Asset Management Inc. used funds including Macquarie Energy Transition Infrastructure Fund International, which closed in April, to purchase a minority stake in D.E. Shaw Renewable Investments LLC (DESRI) in September.
The D.E. Shaw & Co. Inc. subsidiary has more than 6 GW of utility-scale solar, wind and battery storage projects in the operation and construction stages, 4 GW of preconstruction projects under contract and a 25-GW development pipeline. Several of those projects will provide power to Meta Platforms Inc. through long-term power purchase agreements (PPAs) with the tech giant as well as contracts with utility companies.
DESRI will also provide 400 MW of power to a Google LLC datacenter in Kansas expected to begin operations later this year.
"They are ahead of the pack in terms of bringing new renewable energy capacity online and have expertise in originating and managing large, corporate off-taker agreements," William Demas, Macquarie Asset Management green investment head for the Americas, said in an email.
Separately, Macquarie portfolio company Treaty Oak Clean Energy LLC recently signed a PPA with "one of the largest hyperscalers" for the 100-MW Redfield solar project in Arkansas, Demas added.
Battery storage
Carlyle Group-backed Copia Power is also eyeing datacenter customers as it plans to build 30 GW of generation across multiple large clean energy campuses.
Initial phases of its planned 2-GW, 14,000-acre solar-plus-storage energy campus in Arizona have PPAs with Arizona Public Service Co. and a non-hyperscaler offtaker. "We expect subsequent phases of the campus to include partnerships with tech companies and to include the buildout of datacenters and additional associated power infrastructure on site," David Gluck, a managing director on Carlyle's global infrastructure team, said in an email.
There are $5 billion of assets under construction at the Arizona campus, which represents Copia's "niche focus" on colocating industrial load with generation, according to Gluck.
"Our thesis didn't start out purely focused on serving hyperscalers," he said. "They were in the mix with hydrogen, manufacturing and other industry that will need to be electrified, but now we are seeing a ton of demand from AI to partner with us."
Private equity firms have taken an enormous interest in battery storage, according to Karbone's Gardett.
"There is a firm that has taken their entire new infrastructure fund and put it toward supporting digital infrastructure, which is essentially datacenters," Gardett said. "They've taken a huge interest in batteries. I think we're going to see more of that kind of structure."
Combining renewables and fossil fuels
Private capital is not relying solely on renewables to take advantage of skyrocketing demand.
"They're also helping to finance gas capacity for datacenters through portfolio companies that own assets," Gardett continued. "They will have a specific agreement with Google, Meta, whomever, in order to get appropriately compensated for keeping that unit off when clean power is on and turning it on when clean power isn't available."
Along with renewable power supply, hyperscalers are also looking to firms such as Ares Management Corp. and its portfolio companies for assistance facilitating grid connections.
"Datacenter developers may come to Ares seeking investment to fund development and procurement required to secure this grid connection, including utility deposits and transformer purchases," Keith Derman, partner and co-head of Ares Infrastructure Opportunities, said in an email.
Firms such as Blue Owl Capital Inc. are connecting hyperscalers to brownfield power generation.
The alternative asset manager in October announced a $3.4 billion joint venture with AI infrastructure company Crusoe Energy Systems LLC and datacenter advisory and investor firm Primary Digital Infrastructure to build a 206-MW datacenter at the Lancium LLC Clean Campus in Abilene, Texas.
The partnership will "optimize existing generation" to power the facility, Crusoe co-founder and CEO Chase Lochmiller said in an interview, with gas generation providing backup power instead of diesel fuel.
"This is one of the elements that lets us get to market faster," Lochmiller said about the backup supplies.
Crusoe and Primary Digital Infrastructure aim to work on other similar projects using existing and new generation.
"There's other projects we're looking at that involve new gas generation with [carbon capture, utilization and storage] and being able to benefit from the increased dollar payment from the 45Q federal tax credit," Crusoe added.
Even with private equity carving out a key role in financing datacenter load growth, Karbone's Gardett does not see banks taking a back seat.
"This is what a bull market looks like for this kind of asset, and there will be room for everyone to play," he said. "I don't expect banks to just roll over."