Flywheel in Focus: Investment Perspectives on The Energy Transition

In our latest issue of The TPG Take x Flywheel in Focus, leaders from across TPG Rise Climate share their perspectives on the new solutions and business models that will deliver the abundant, reliable, and cleaner power to meet the needs of next generation economy.

They discuss the growing demands driven by AI and data centers, expanding energy access in markets like India and Africa, decarbonization of real assets, TPG Rise Climate’s thematic approach and rigorous impact assessment, and more.

Note: the below is an edited transcript of interviews with leaders across the firm. For more, please be sure to watch the full videos.

Energy and Power Market Dynamics Today

Jonathan Garfinkel: "We view investing for climate as one of the major opportunities of a generation. It is rare in any lifetime to have an opportunity like this where essentially the whole world needs to remake its capital stock in a way that is sustainable."

Jim Coulter: "Everything from new leaders, new business models, and new opportunities for profit pools are going to be created – and behind that will be enormous opportunity and enormous complexity."

Scott Lebovitz: "We went through a period where renewables were venture or growth investments where we were still trying to figure out the technology. If you think about what's happened as the industry's evolved, cost curves have come down, so we're seeing solutions that are cost competitive with other forms of power and almost always faster in terms of deployment."

Ed Beckley: "Our grid of the future has myriad distributed generating assets, so there's a much bigger role for technology to play in managing that complexity. As we go through this transition from a very simple network to a very complicated one, there has to be a lot of investment and there has to be a lot of change."

Climate Investment Themes & Portfolio Spotlights

Ed Beckley: "TPG Rise Climate was built on a view that if you are serious about decarbonizing our economy, you need to take a very broad approach. You need to pursue a hundred pathways, and you need to understand each one of them to understand all of them, because in many ways they're connected."

Jonathan Garfinkel: "For us in climate, what does that mean?

• Clean Electrons is thinking about ways to electrify, starting with solar, wind, or other renewable power.
• Then, the clean electrons power the next piece of the equation, which is Sustainable Materials and Sustainable Molecules. You use green power to create fuels and materials that are clean.
• Our third vertical is Adaptive Solutions. Acknowledging the fact there is a base level of CO2 in the environment that will be there for a long period of time, we have to find ways to not only remove it, but also adapt. Those are things like carbon markets, grid resiliency, and disaster relief."

Ed: "When we think about clean electrons, the first big area you can jump into is transportation, and we're seeing electric vehicles are cost competitive, if not now cheaper than conventional vehicles. Within green mobility, one of the first considerations is how to enhance EV charging infrastructure. Then, as you get deeper, it's thinking about how you decarbonize heavy transportation, whether that's ferries or ships or aircraft."

Jonathan: "Perhaps the biggest issue that consumers have in buying an electric car is range anxiety, and the key to solving that is better battery technology. So, we have partnered with Applied Materials, which has been developing a product that enables higher and higher energy density in a battery. By carving Elevated Materials out of the business, we have created a supplier into the lithium-ion battery world, which enables higher energy density.

This is the kind of deal that only TPG could do where you're carving out a very complicated business from a corporate parent that will remain our partner in it. And that's just one example of how the TPG Private Equity toolkit can be applied to the energy transition to bring better batteries to the market to make the adoption of electric vehicles go even faster.

Ed: "It was always clear to us that the downstream piece – the end consumer – will be key to bringing about a total transition. And that's been the case, especially in more developed parts of our world in Europe and North America, where we've seen consumers prepared to invest their own capital behind green solutions for the home.

EnPal is Europe's largest and fastest growing home decarbonization platform. They started their journey as a leasing business, leasing solar panels to go on residential dwellings. And as the business has grown, they are close to becoming a total home decarbonization solution. They can lease or sell solar panels for the roof, batteries for heat pumps, an EV charger, a smart meter, etc. Then, the most exciting part is when you connect all of those assets across a cohort of customers, you can then sell them back into the grid as part of a 'virtual power plant,' which creates flexibility and ancillary services for the grid."

Marc Mezvinsky: "As we think about the world decarbonizing, there are some sectors that are much harder than others to decarbonize. Adaptive solutions deals with the first and last mile of carbon emissions, and Negative Emissions sits within that bucket and says when you're running this equipment or when you have these effects, how can we correspondingly navigate those emissions?

Anew is a solutions provider for those who acknowledge that their business is going to have a component of emissions. So, a responsible corporate could go to a company like Anew who can help offset their emissions. If you view them as a microcosm for the need to decarbonize, there's a lot of information value in not only what Anew represents, but what our portfolio represents and the growth behind it."

AI, Data Centers, and Rising Energy Demand

Ed Beckley: "One of the fascinating features of this energy transition is we are doing it against a backdrop of rapidly rising energy demand. And the key drivers of that demand are data centers and the desire for compute, and, ultimately, the renewable solution needs to be a scale solution.

We completed a partnership we're very proud of between one of our portfolio companies, Intersect Power, and Google at the end of 2024, which we'll see Intersect build vast amounts of renewable power to provide base load power to Google's data center operations. And I think this is something we're going to see more of – large scale partnership arrangements to ensure that this future demand can be met with a green solution and at the lowest possible cost. Additionally, that it can be done in a way that gives the users of that power much more security of supply."

Marc Mezvinsky: "There are multiple use cases where if the power goes out, you need a backup power generator. Not only for data centers, but think about hospitals or other essential services. In those instances, how do you decarbonize the emissions that are coming from running an essential service?

A specific example would be a portfolio company called Miratech. They are a market leader in coming up with solutions that allow data centers to run clean in the event that backup power is needed. It is on the perimeter of the data center opportunity, but it has the same macro tailwinds driving its growth.

Not only are we looking at AI, data centers, and rising energy demand through a climate lens, but we're also looking at it through a software and a real estate lens. So, we're able to pull in resources across our liability pools to give us real edge."

Decarbonizing Real Assets & Infrastructure

Scott Lebovitz: "The infrastructure market has grown exponentially over the last 15 years, from ~$180 billion of assets under management to over $1 trillion today. So, there is a lot of capital out there for a big investment need. In my opinion, the next two decades is going to be all about decarbonization of real assets. And at TPG Rise Climate Transition Infrastructure, we have a big advantage and head start given the team and the scale that we have inside the Rise Climate platform.

Within Transition Infrastructure, there are a few themes that we are thinking a lot about:

• First in the energy transition space, we do think there's going to be an opportunity to help out some existing renewable platforms that either need more capital to grow, or potentially even to send capital back to their LPs.
• We are also thinking a lot about the green mobility space. Not necessarily electric cars, but more so fleets – whether that's buses, rails, or trucks – so almost a B2B theme within green mobility.
• Finally, we're also spending time in the waste theme, whether that's environmental services, landfill avoidance, or more circular use of waste.

Our first investment is in the energy transition space, a business called Altus Power. Altus is the second largest distributed generation company in the U.S., and I think they will be a big part of the future of the U.S. power markets. They help commercial, industrial, and, in some cases, residential customers, have behind-the-meter solutions – meaning they're not necessarily attached to the grid – either through outfitting tops of buildings or car parks with solar panels in order to provide power at a discount to what otherwise those companies would be procuring from the grid.

What I'm most excited about over the next five to ten years is that I truly believe we're entering a time when the infrastructure market is pivoting to decarbonization of all of these real assets that will need to scale and build. It's broadening and becoming more complex and I think we've got the depth of knowledge, the ecosystem, and the people to be really successful in this business."

Global Energy Perspectives

Jim Coulter: "It's fascinating to watch the global discussion on the energy transition today. There's obviously a lot of debate going on in the U.S., and yet, when you think about the energy addition in front of us over the next year, only 10% of it is in the U.S.

So, in some ways, it's a massive exercise in separating the signal from the noise. And the signal we see on the ground at our companies is where growth and impact is happening with increasing speed and scale – and that signal is where we need to keep our eye."

Ed Beckley: "Europe is now looking much more favorable in terms of relative stability, and so, we've been able to redeploy resources into the region that would otherwise have been focused on opportunities in the U.S. This level of flexibility that we have within the team has been a great strength as we see how these markets ebb and flow and where the best risk adjusted returns can be achieved."

Jonathan Garfinkel: "You have to look geography by geography, factor in the specific nuance of what they bring to the table, and then get to the cleanest solution as quickly as possible. At the same time, recognizing that economic mobility is inextricably tied to energy availability, and so, the predictability of energy use versus per capita income is a bulletproof relationship.

Therefore, in parts of the world where people are coming out of poverty, to do that requires more energy. The other thing that we look at, particularly through the lens of our Global South Initiative, is how can we enable bringing power, hopefully green power, to the parts of the world where you're talking about a very different equation where adding energy is critical to economic mobility."

Yemi Lalude: "In Africa, we think the clean electron space is really where we'll put most of our money to work. There's often this question as to whether it's transition or addition, and in Africa, it’s very much energy addition. Roughly 50% of the population of Africa does not have access to reliable electricity. And the opportunity we have is to mirror what happened in the telephone industry where people just skipped the landlines and went straight to mobile phones in Africa. We think we can do the same with respect to electricity provision – just go directly to clean electricity. And the reason we're able to do this is the economics of things like solar energy have improved so much that in many countries it's actually less expensive to go clean."

Ankur Thadani: "One in five people in the world are in India, which is also home to six out of the top ten polluted cities in the world. So as India thinks about solving the climate problem, it's actually faced with a very interesting trilemma, which is India has to think about energy security. India is the third largest growing market in terms of energy consumption, and 30% of India's energy is imported, which the government is looking to change from a geopolitical perspective.

At the same time, affordability is driving new energy demand and supply because we're seeing renewable energy is 40-50% cheaper than coal or gas-based power plants. So, we are actually seeing some very interesting opportunities emerge in India, which are driven by fundamental business economics and fundamental sociopolitical objectives.

Our Siemens Gamesa transaction was a competitive process where we carved out the onshore written business off Siemens for India and South Asia, and actually sought exclusivity because Siemens saw us as great partners to help build a business in India. We also brought a very interesting set of relationships to this deal – a $45 billion industrial conglomerate partnered with us to do this transaction because they thought we could bring the set of partnerships as well as the execution capability to drive the platform going forward.

Our whole thesis for the Siemens Gamesa transaction is not only be the preferred highest-quality product supplier in the wind turbine market in India – which is growing by orders of magnitude – but also, to become the preferred manufacturing location for Siemens Gamesa’s global supply chain."

Y Analytics: Measuring Carbon Aversion

Jim Coulter: "The Rise Funds have built their entire operating model on the idea of ‘and’ not ‘or,’ meaning that we could deliver full returns and noticeable, demonstrable impact. That's required us to put as much work into measuring our impact as we do to measuring the underwriting of our financial aspirations. Y Analytics is one of the differentiators for our platform."

Maryanne Hancock: "Y Analytics is the impact assessment and responsible investing arm of TPG. When we first created TPG Rise Climate, we were looking at the increase in the pipeline in the numerous climate deals that were coming through to us, and there were some important pieces that we saw right away. We looked at the drawdown potential from an emissions perspective that different sub-sectors within climate could have and we looked at the returns profile. So, from the very beginning we were looking at those two as an integrated view.

It’s been really important for us to look at climate solutions through the lens of the carbon aversion potential that they have. These are companies whose products and services are helping others to decarbonize. Most of the metrics in the industry are focused on what's called scopes 1, 2, and 3 emissions – so helping companies that are already emitting, reduce their emissions. But if you are evaluating and investing in companies whose products and services are going to help to decarbonize, the most important metric is what's the carbon aversion potential of those companies? And that's a radically different view.

Across TPG Rise Climate I, we estimate there's about 900 million metric tons of carbon dioxide equivalent emissions that will be averted over the lifetime of those assets. It's an estimate, but it helps us understand whether the portfolio we're creating is truly delivering at scale.

One of the things that's really important to our work is the use of high-quality research. Part of our role not only is to conduct the assessments, but actually to follow and stay attuned and abreast of new research. And there are a few areas where we hope to see much deeper research. For example, within adaptation resilience, looking at the increased frequency of certain kinds of events, like wildfires or storms. Really tuning in the science around how we can start to estimate the increased frequency is a nascent field, but again, is a really important research field. So we hope that these fields will continue to emerge."

Looking Ahead

Jim Coulter: "As I look ahead, energy transition investing is one of the biggest investment themes of the next 20-30 years. At TPG, we're well-versed in taking complex markets and finding workable solutions. We've done that in technology, in transportation, and in healthcare, so that same approach is what we bring to climate. It begins with deciding not what's for sale, but what you want to buy, and surveying the marketplace to find solutions that we believe work at economic models that we believe will scale. The technologies and business models around climate investing are evolving quickly, and you'll access that evolution in the private market.

We invest in climate across private equity and infrastructure. We take a broad approach to climate, and we do that not only from a sector point of view, but also, from an asset class point of view.

As we look ahead to the next 10 years of climate investing, we see a new set of opportunities emerging. Nuclear is now becoming actionable in the marketplace, and we expect it to become an increasing part of our activity set over the next 5 to 10 years. Electric aviation has reached a new point in its development too. Add all of those opportunities together, with the advent of AI, and it's going to be a rich and fascinating set of opportunities for decades to come."

ICYMI: Other News & Views from TPG...

In a recent episode of Investment Insights, Joel Thickins, Co-Head of TPG Asia and Head of Australia & New Zealand, shares his perspective on Asia’s macro landscape, highlighting structural tailwinds and growth in alternatives across the region. Joel also explores investment opportunities in Australia, framed by increasing trade opportunities with the Asia-Pacific markets. With 30+ years in Asia, TPG combines sector specialization, operational value-add, and the strength of our global franchise and ecosystem to build regional market leaders and foster long-term growth.

At TPG, we are proud to have an exceptional Board of Directors who bring a diverse set of experiences, backgrounds, and strategic vision to help guide our growth. Independent Directors Mary Cranston, Debbie Messemer, Kathy Elsesser, and Gunther Bright have each led accomplished careers spanning law, finance, investment banking, and customer strategy, and their insights are instrumental in ensuring we remain innovative and forward-thinking. Learn more about their career journeys and what brought them to TPG.

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