Masdar Struggles To Invest Locally

Masdar Capital, the venture capital arm of Abu Dhabi government-owned green energy firm Masdar, is bullish about snapping up stakes in renewables and clean tech energy companies in order to fully invest a $290 million fund by 2014, but this region is providing few opportunities.

Masdar, which has about $540 million of assets under management, is keen on investing in companies in North America, Europe and Asia as part of Abu Dhabi’s plan to position itself as hub for green energy. Masdar, a unit of Abu Dhabi government investment firm Mubadala, was set up in 2006 with a mandate to develop and invest in the renewables and clean-tech energy sector in a bid to meet Abu Dhabi’s target to generate seven per cent of its power from clean energy by 2020. This plan includes the building of Masdar City, a residential and commercial complex designed to be zero-emissions and zero-waste upon completion.

“We see a trend where investment opportunities are getting stronger, there are better management teams and better use of capital,” said Aalex O’Cinneide of Masdar Capital.

Masdar Capital, which has fully deployed its first $250 million fund launched in 2006 in partnership with Credit Suisse, has only made two investments in its second fund, which was closed at $290 million in partnership with Deutsche Bank and could be fully invested by 2014: California-based glass processing firm eCullet ($38 million) and Chinese wind energy firm, UPpC Rrenewables ($25 million). Iit expects to invest around 35 per cent of the fund each in North America and Europe, with the rest going to other regions.

“The countries which have some of the most interesting products and technologies are still Western Eeurope and North America, but one of the biggest markets to avail of is China,” said O’Cinneide.

“I can see products and services being developed in Europe and North America and used in operation in China. I also see a trend where a lot of the products and services that are being developed move out to Asia to be actually scaled up into manufacturing and commercialisation.”

China came in first place in clean energy investment in 2010, followed by Germany and the US, according to a report by non-profit organisation The Pew Charitable Trusts, released in March this year. China, the world’s leading producer of wind turbines and solar modules, surpassed the US as the country with the most installed clean energy capacity in 2009.

Globally, clean energy investments increased 30 per cent to a record of $243 billion in 2010 from a year earlier, while venture capital and private equity investments in the sector in G-20 countries increased 26 per cent to $8.1 billion in 2010 from a year earlier, the report showed. Governments worldwide are earmarking more funds for the sector as part of economic recovery and stimulus packages created to combat the recession. The Fukushima nuclear disaster in Japan is an added catalyst to the industry as countries such as Germany start switching off their nuclear plants and look for other sources of power.

In the UAE, the economic ministry has forecast that private sector investment opportunities in the alternative and sustainable energy industry will reach $100 billion by 2020. Currently, Masdar Capital’s portfolio includes only one UAE company, Abu Dhabi based solar developer Enviromena Power Systems, in which Masdar owns a significant stake, said O’Cinneide.

“We receive proposals from companies based in the region, but the volume of those proposals is much less than we get in North America,” said O’Cinneide. “We imagine going forward that the overwhelming majority of our investments will still be internationally focused. We have a very developed venture capital and private equity market in North America and Europe with a history of funding technological companies for the next level of development.”

Greater government funding in renewables would help Masdar and its partners scout for more investment opportunities in the region.

Regionally, more investors are shifting toward venture capital and funds with a specific focus on industries such as energy and power, which are considered resilient non-cyclical sectors with room for growth, the non-profit MENA Private Equity Association said in its 2010 report.

Private equity and venture capital funds raised in the Middle East and North Africa rose 18 per cent to $1.3 billion in 2010 from a year earlier, but is still shy of the $6.5 billion record reached in 2008, the association said. The lackluster fund-raising environment prompted Masdar Capital to close its second fund at $290 million, below the initial ticket size announcement of around $500 million.