Private equity firm Kohlberg Kravis Roberts (KKR) joined with the world's largest reinsurance company, Munich Re, to purchase a 49% interest in solar power plants owned and operated by T-Solar Global SA.  T-Solar is the largest owner-operator of solar power plants in Spain and Italy, with a generating capacity of 168 megawatts. 

T-Solar will use the cash infusion to triple its solar capacity to 500 megawatts by 2014.  As part of the deal, KKR and Munich Re have options to invest in future plants.

Also this week, France's AXA Private Equity announced that it has acquired 15 wind farms around Paris with a combined capacity of 163MW.  The acquisition makes AXA Private Equity the fourth largest wind power operator in France.

These are just the most recent renewable energy deals by large private equity firms and insurance companies.  In December, a Munich Re affiliate invested in 40 German wind turbines with a generating capacity 73 megawatts.  In June, KKR formed a partnership with Sorgenia SpA to develop wind power projects in France.  And Munich Re announced plans this week to invest another 2.5 billion euros in renewable energy assets “relatively quickly.”

Why are large private equity firms and insurance companies investing in renewable energy when countries such as Spain and the Czech Republic have cut subsidies for wind and solar projects?  The fundamentals are very attractive.  Costs for wind and solar keep coming down (and they have no ongoing fuel costs), while prices for fossil fuels for traditional power plants have remained high throughout the Great Recession and will only go higher once economic growth returns.  The smart money knows that it can be very profitable to be in a business where your costs keep getting lower and your only competition will continue to get more expensive.

John Howley
Woodbridge, New Jersey

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