IN DEPTH: Goldman goes green

Goldman Sachs has plans to invest $40bn in clean energy by 2021 — not to save the planet, but to make a killing.

The world’s most powerful and controversial financial institution describes renewables as one of the biggest profit opportunities in decades.

Goldman Sachs finds this market incredibly compelling,” says Stuart Bernstein, who heads its clean-technology and renewables investment banking group. “It is at a transformational moment in time.”

Despite a recent industry downturn, fewer public subsidies in Europe and a sluggish global economy — not to mention the copious amounts of natural gas and oil becoming available through fracking — chief executive Lloyd Blankfein and his lieutenants believe the time is right to further embrace clean energy.

“We’re taking a decades-long view,” Bernstein tells Recharge. “We think renewable energy is going to be an important component of global GDP growth. It will be important from a societal perspective, and it will be good business for us and our clients. We want to be extraordinarily focused, involved and have the best franchise in the area. That’s how we think about it.”

Bernstein vigorously disputes suggestions by critics that embracing clean energy is part of a calculated effort to rehabilitate its public image, which took a beating for its actions during the 2008 financial crisis. “I can assure you it’s not for public- relations purposes,” he says. “If I thought the firm was doing it for that, I would not be. Life’s too short. I have too much respect for the organisation to work on something that would be considered greenwashing.”

The executive points out that Goldman’s renewables investments have outperformed expectations since 2005, when Goldman made a ten-year commitment to finance and invest up to $1bn in alternative energy. It also made some savvy investments — more than doubling its money in 2007 when it sold Horizon Wind Energy to Portugal’s EDP for $2.15bn in cash, and doing well off early equity stakes in First Solar, SunEdison and India-focused, Singapore-based developer Asian Genco.

By 2012, Bernstein says, the bank realised the sector is going to be a much bigger opportunity than initially thought. “We came upon the $40bn target. But it wasn’t something that was done lightly. It was months and months of work. It’s a very important announcement,” he says.

Matt DaPrato, senior analyst for IHS Emerging Energy Research, agrees. “It is somewhat of a validation of the industry’s future and a vote of confidence that there will continue to be opportunities,” he says. “Goldman Sachs is obviously in it to make money, but so is everybody else.”

Goldman economists see a convergence of factors working in renewables’ favour. They believe that costs will continue to decline as efficiency improves, that solar and wind will reach grid parity without subsidies in the not-too-distant future, and that technological advances will solve energy-storage issues. They also think that the coal industry’s current position atop the global fuel mix is eroding due to environmental and climate concerns and strong competition from renewables and natural gas.

With Goldman predicting that the green-energy sector will require annual investment of $395bn by 2020, the bank has assigned some of its brightest and most seasoned bankers to grow all three main facets of its renewables business — advisory, financing and investing. It is leveraging strengths such as its global presence in capital markets, core investment-banking expertise, superior research capability and unparalleled corporate and political networks across countries and regions.

Much of its attentions will be focused on large growth markets such as Brazil, China, India and Mexico — developing nations whose economies each represent at least 1% of global GDP — and industrial ones such as Japan and South Korea. These countries have rapidly growing populations, rising per-capita energy consumption, and pressing environmental risk and health issues tied to over-reliance on fossil fuels, and/or energy shortages that are getting worse.

In Japan, where the government instituted generous feed-in tariffs (FITs) following the Fukushima nuclear disaster, Goldman has created an independent power producer — Japan Renewable Energy (JRE) — to develop, build and operate solar, wind and other renewables projects, backed by the group’s $3.1bn GS Infrastructure Partners II fund (GSIP).

“JRE’s funding strategy is to raise non-recourse project financing at the project level, and to fund the remainder with equity provided by GSIP Investments,” explains Ankur Sahu, co-head of Goldman’s Asia-Pacific merchant banking division. Investments made so far by JRE include a 250MW solar project in Setouchi, Okayama prefecture, and a 40MW PV plant near Tokyo.

As with Japan, Goldman is attracted by double-digit returns that private-equity investment can offer in parts of India where regional FITs prevail. The bank expects that wind will be the fastest-growing renewables sector in the country, and has bought a majority stake in local developer ReNew Wind Power, which plans to build 1GW of renewables projects by the end of 2015. 

The US will also see investment, as Goldman expects it to continue to play a crucial role in helping the industry scale up, due to the size of its market, its entrepreneurial and technological leadership, and vibrant venture culture.

Other interesting possibilities include countries with abundant renewable resources, such as Chile, where the bank is looking at supplying solar energy to mining operations in the northern Atacama Desert. It also is on the lookout for strategic plays similar to its recent $1.47bn purchase of a 19% stake in Danish utility Dong Energy, the world’s largest offshore wind developer.

The bank believes it can help the renewables sector reach scale, compete on cost and promote new technologies. “What Goldman does best is we understand the capital markets and the strategic landscape,” Bernstein says. “We can finance the most important companies in the space.”

As an example, he cites SolarCity. Goldman was lead underwriter for its successful December 2012 initial public offering (IPO), the first for a distributed solar generation company. In May, the bank provided the California company with more than $500m in financing that will enable the developer to install about 110MW of solar panels and then acted as joint bookrunner for an offering of common stock and convertible notes in October.

“It’s not just an IPO. That’s the first step,” says Bernstein. “It is follow-on financings, convertible markets, tax equity and other creative forms of raising capital. We help these companies grow.”

He sees the SolarCity IPO as helping other solar start-ups that want to go public. Before then, investors were reluctant to touch solar after the high-profile failures of Solyndra (for which Goldman acted as financial adviser), Evergreen Solar and others.

But distributed solar is a completely different business than upstream manufacturing. “People realised how interesting and attractive the downstream solar space is after thinking about it more carefully,” he adds.

Goldman, the leading arranger for renewables stock offerings in 2012, expects continued improvement in the IPO market in 2014, with most clean-energy stocks worldwide outperforming the broader indices. The closely watched WilderHill New Energy Global Innovation Index, which tracks 97 shares, soared 16.6% in the third quarter, versus a 5.5% decline in 2012 and 40% plunge in 2011.

Several months ago, Bernstein was given added responsibility to head Goldman’s venture-capital coverage group, which has a key office in California’s Silicon Valley. The bank is working on a strategy to enhance its presence in the high-risk, high-reward sector, concentrating on investments in late-stage venture companies off its balance sheet. It is also using its convening power to host conferences and forums for sector stakeholders.

Randy Hawks, managing director of Claremont Creek Ventures, points out that an institution of Goldman’s size does not need to invest in early-stage start-ups.

“Writing a million-dollar cheque for a small start-up, even if it’s very successful, doesn’t move their needle,” he notes.

Renewables venture investing is notoriously dicey, and the competition to find the next SolarCity success story is ferocious. But for Goldman, managing long-term risk and making money is what it has been able to do better than anyone else.




Dong Energy | Goldman agreed to pay $1.47bn for 19% of the Danish utility, the world’s leading offshore wind developer (Oct 2013).

ReNew Wind Power | Goldman owns a majority stake in this ambitious Mumbai-based developer after investing $202m in September 2011 and a further $135m in June last year.

BrightSource Energy | An undisclosed amount was ploughed into the California-based concentrating solar power technology firm (Nov 2012).

FloDesign Wind Turbine | An undisclosed amount was invested in this US technology start-up, which is developing an experimental high-efficiency shrouded wind turbine inspired by the jet engine (2010).

Asian Genco | Goldman was part of a US investor group that bought 44% of this Singapore-based power generator (Mar 2010).

CS Wind | An undisclosed amount was invested in this South Korean wind turbine tower manufacturer (Jun 2008). An IPO is expected this year.

Eco Energy | This South Korean renewables developer received an undisclosed investment from Goldman (Jun 2008).

Nordic Windpower | A “significant” amount was invested in this US-based turbine maker, whose two-blade design was a market flop (Oct 2007). The firm filed for liquidation in 2012.

SunEdison | Goldman was the lead investor in an equity round (Jun 2006).

Zilkha Renewable Energy | This US developer was bought outright by Goldman in May 2006, rebranded as Horizon Wind Energy, and sold in March 2007 to Portugal’s EDP for a reported $2.15bn.

Nordex | Goldman indirectly bought a 14.3% stake through German and Dutch funds (May 2005). It sold most of its stock in December 2009, keeping 3% of the company.


SolarCity | Goldman provided more than $500m in financing for solar rooftop leases to this US distributed solar generation company in May 2013, six months after being the lead underwriter for its IPO.

Tesla | Sole manager in $225m follow-on equity offering for the high-spec electric-car maker (Sep 2012). It was the company’s joint bookrunner for its IPO in June 2010.

Enel Green Power | Joint global co-ordinator and joint bookrunner for landmark IPO of a minority stake in Italian utility Enel’s renewables unit (Oct 2010)

Clipper | Financial advisEr for sale of remaining stake to United Technologies Corporation (Oct 2010).

Orient Green Power Company | Joint bookrunning lead manager for IPO of what was then India’s largest independent operator/developer of renewables plants (Sep 2010).

China High Speed Transmission | Sole bookrunner for $418m share sale of Chinese industrial heavyweight, which provides parts such as power trains for wind turbines (Sep 2010).

John Deere Renewables | Advised on sale of US farm equipment giant’s renewables unit to Exelon (Aug 2010).

Solyndra | Goldman was the exclusive financial advisEr for the disastrous $535m US Department of Energy loan guarantee and co-lead underwriter for the thin-film PV manufacturer’s planned IPO that was cancelled before the firm went bankrupt (2009).