GE’s Energy Financial Services Continues Investments in Renewables

Kevin Walsh

GE was one of the first large American corporations to go green, with an “Ecomagination” portfolio that includes partnerships and investments in seemingly every green space. GE's foresight has positioned the company as a premier driver of change as the energy market’s buyers and vendors venture into a market fundamentally changed by the public's growing awareness of climate change. VerdeXchange News is pleased to present the following interview with GE Energy Financial Service’s (EFS) Kevin Walsh, who manages EFS’s renewable energy investment group. As Mr. Walsh explains, renewable energy represents the fastest-growing portion of the EFS investment portfolio. 


You help manage GE’s Energy Financial Services renewable energy investing group, which now has a multi-billion dollar portfolio of green and clean tech investments. What is your market niche?

I manage the renewable energy business within another business, Energy Financial Services (EFS), which has a $14 billion portfolio of investments, loans, and equity investments across the energy space. And I’m proud to say that renewables are the fastest-growing segment of that business. The renewable portfolio is over $2 billion of EFS’s $14 billion, so we’re a fairly small piece of it, but as I said, we’re growing the fastest.

We established this sub-segment within EFS in 2006, when we saw the opportunity on the horizon to invest in renewables. We’ve been investing in renewables for some time. In fact, early in my career here, we did hydro projects and geothermal projects; we did our first wind project back in 1998. So, we weren’t new to renewables, but we were certainly focused on the tremendous growth of renewables and the global opportunity we saw. So we added staff, we made a separate segment within EFS, and I was asked to head it up.

What renewable energy investment opportunities is GE most bullish about?

Wind is where we see the biggest opportunity, and if you look back on our press releases, that’s where most of our activity has been in the last few months. The growth in the wind business, particularly here in the U.S., which is the fastest-growing market in the world, has been tremendous, adding 3–4,000 megawatts a year.

A state like Texas, which has tremendous wind resources, has added significant megawatts, and they intend to add more. They adjusted their renewable portfolio standards upward at least twice to reflect the opportunity that they see and the challenge that they put to themselves to increase the renewable portion of their portfolio. They’re number one—they’ve surpassed California. Ventura Cap Main

Elaborate on how GE makes its investments in renewables. Are you primarily doing project financing?

The bulk of GE’s renewable business is investing in projects, traditional project financing, where we put in, often times, $50–$100 million to get the project, or more. We have a sub-segment within my group: a venture equity investment group (some people call it “clean tech”), where we invest in emerging technology companies, so it’s a different way to play. On the venture side, it’s made up of smaller investments, $3–$5 million, investing in companies that we think have great promise to grow and offer a viable commercial product.

I also want to point that out that we are equipment agnostic. It’s well known that GE is a major manufacturer of turbine equipment. That’s a big benefit, in the sense that it helps us understand the market and its opportunities, and we have some common customers. Certainly a basic understanding of the technology helps us. But beyond that, we’ve financed good projects that use proven equipment, including GE’s. So, we have a portfolio that includes wind turbines from many equipment manufacturers. We’re also very active in solar, geothermal, hydro, and biomass and biofuels.

Give our readers a weighted view of GE’s renewables portfolio. Is there any sector of the market that dominates your portfolio?

The portfolio is about two-thirds wind right now, and that’s driven not so much by design by us, necessarily, but by the market opportunities we’re responding to. Because of the opportunity in wind, we think we’ll probably stay for a while, but we are aggressively pursuing other investments. We closed recently on a hydro investment in British Columbia. We’ve got a number of biomass projects we’re pursuing that we’ll announce soon. We closed on a landfill gas acquisition recently; it’s relatively small by our standards, but in that space it’s pretty large. We bought the interest from our partner in a landfill gas project out in Glendale, California.

What percentage of your portfolio is in solar? Can you share the names of some of the projects you’ve invested in?

It’s still a relatively small percentage, but we think it will grow. We’re very excited about solar. We’re the proud owner of one of the largest solar PV projects in the world, a project called Serpa. It’s located in Portugal. It’s 11 megawatts, which, for solar, is pretty large. As I said, it’s one of the world’s largest. We purchased that from PowerLight last year, and we own 100 percent of that. We also have investments with a company called Solar Integrated Technologies, based in California. We’ve provided financing to that company, and we also provide refinancing to one of their major customers.

Has GE invested in the wave energy, biofuels, and battery markets?

On the venture side, we invested in a company called Ocean Power Delivery. Again, it’s a relatively small investment, but we expect it to have great promise.  In the biofuels space, we are pursuing some equity investments that are too preliminary to disclose, but we’re most definitely interested in that space—both the biodiesel and the ethanol space, principally cellulosic ethanol. We’re steering clear of the corn-based ethanol at the moment. We are looking at Brazil—Brazil is interesting. Again, it’s too early to talk about anything specific.

Another deal worth mentioning: on the tech side, we invested in a battery company called A123. We think that company has great promise. They have a lithium ion battery technology that holds great promise across multiple industries, but particularly in the auto space.

How does GE evaluate renewable opportunities? What screening process do you use to benchmark profitability of renewable companies and projects?

We apply the same rigor to the investments we make in renewables that we do anywhere else in our business. While we are pleased to be investing in this space with Ecomagination and things like that, fundamentally we apply the exact same rigor and underwriting standards and risk analysis that we do to anything, whether it’s in the oil and gas business or the traditional power business. We’re doing this to make money—to get a good return for GE. We’re very careful to look at the risk-return equation on every deal. And we like what we see in the spaces that I mentioned—there are good opportunities to put GE’s capital to work.

Wind went through a boom and then a bust 20 years ago. Much of the renewable market’s success the last few years depends on oil being at $70-plus a barrel. Do you see any risk surrounding the renewable business model in the near future?

No, I don’t. I think the fundamentals are still there. Fuel prices, obviously, are still high, and are likely to stay there. I think what’s fundamentally different, though, from the era that you referred to, is the heightened concern for the environment, which wasn’t as pronounced back then, a heightened concern for energy security, which wasn’t as pronounced back then, and the tremendous improvement in technology since then. The cost of wind power has come down significantly. The cost for solar has come down, and there’s great anticipation for much greater reductions in the cost of solar in the near future.

Geothermal has been competitive for some time and is becoming more competitive. There’s a lot of research and effort going into the biofuels that we think holds great promise. Obviously, GE benefits from having very significant research efforts giving us insight. GE is one of the world’s most successful research efforts across the energy space, so we leverage that to help us make smart investments.

At the “Green is Universal” event in Universal City this May, GE CEO Jeffrey Immelt spoke about the market potential of clean energy in China and India. What is the potential of these two energy markets?

Clearly, there is a tremendous and powerful need in India and China, as there is in the developed world—their growth speaks for itself. The opportunity to equip those countries with the latest technology is a great opportunity and a great challenge. As I mentioned, we care very much about making sure our investments are sound. We have been investing very actively in India for some time, and we’ll continue to do so.

For China, we are looking at it cautiously, but we think there are some opportunities there. Again, there is a fundamentally different rigor required to sell products in a country versus investing there for the long term. Anytime we invest our money long term in a project, we are going to analyze the full risk spectrum, including sovereignty risks and such, to make sure we will get our return.

GE is involved in a joint venture with AES to develop a carbon offset project. Could you elaborate on the potential this venture offers GE?

Primarily, we think the voluntary market for carbon offsets is growing. We’d like to contribute to that growth as part of our strategy, teaming with AES to offer a very credible product with our offsets. We’ve been very public in our approach in order to offer the highest standards in terms of disclosure, transparency, auditability, and tracking and tracing our offsets. We really want to see this market develop, and we think one of the barriers to that right now is a lack of some of that transparency in the markets. We’re really stepping up on the quality side. Obviously, we teamed with AES, which is a very competent developer. We think there’s a great opportunity here to see that market grow. And of course, we, like many others, think there eventually may be a regulated market, and this will position us well for that.

Lastly, many investors and elected policymakers see GE’s investment in renewables as a major statement of faith in these alternative energy markets. To whom, if anyone, does GE look to evaluate the markets or select projects for valuation? Specifically, to whom do you look to benchmark renewable opportunities in the energy sector?

Again, I would go back to my earlier statement about applying our traditional underwriting rigor. We haven’t departed from that. We have adapted it to this industry and some of the unique issues specific to renewables. For example, wind has its own set of issues that you need to understand to be able to predict the likelihood that, for example, wind is going to blow like you expect and that the equipment will perform as you expect. But fundamentally, I think we have our own basic understanding of the industry, which we can leverage across GE. We do, from time to time, lean on some outside experts to help us in certain areas, but primarily we make up our own mind and do whatever we think makes sense in the space.