As a further indication of the private equity sector’s growing interest in energy infrastructure, First Reserve Corp. and the California Public Employees Retirement System (CalPERS) have partnered to acquire natural gas-fired generation plants and transmission lines from ArcLight Capital Partners.
Terms of the deal were not disclosed. The transaction is expected to close in the first quarter, subject to regulatory approvals.
Greenwich, CT-based First Reserve and Boston-based ArcLight hold multi-billion-dollar investments in energy infrastructure that have been enhanced with the growth of activity in various shale plays, but the most recent sale involved several gas-fired power plants and the Neptune Regional Transmission System, a 660 MW high-voltage, direct current (HVDC) transmission line that connects a part of the New York state grid (NY Zone K) with PJM.
First Reserve’s Energy Infrastructure Fund is taking a controlling ownership interest in 1,068 MW of gas-fired generation, and CalPERS is taking a 75% ownership in Class C Neptune shares. The generation plants operate under long-term power purchase agreements and Neptune operates with a firm transmission capacity purchase agreement, all with investment-grade counterparties, according to First Reserve.
The new power entity for First Reserve has been named as the infrastructure fund’s North American Power I grouping, including a 240 MW gas-fired cogeneration project, Crockett Cogen in Crockett, CA; a 604 MW gas-fired combined-cycle gas turbine plant in Hobbs, NM; a 230 MW natural and refinery gas cogeneration plant in Borger, TX; and a 72 MW oil-fired peaking plant, Waterside Power Holdings LLC, in Stamford, CT.
Neptune is a 500-kV, 65-mile regional high-voltage regional transmission system from Sayrevlle, NJ, to Hicksville, Long Island, NY.
Separately on Tuesday Standard & Poor’s Ratings Services (S&P) said a $295 million debt offering by Crockett Cogeneration would not be affected by sale of the facility to the First Reserve power fund. Crockett’s debt credit rating is “not limited by the rating of any of its owners,” of which First Reserve is an unrelated co-owner, according to S&P.
“The investment is in line with our macro view that the energy demand-supply imbalance in North America provides opportunities, particularly from cleaner sources, to invest in what we believe are high-quality long-lived assets with low risk and strong yield profiles,” said First Reserve Managing Director Mark Florian. “The [power plants] are expected to benefit from attractive long-term regional market fundamentals and to generate long-term revenues from existing power purchase agreements and is well positioned to take advantage of the growth opportunities in the North American natural gas market.”
Early in 2011 the seller, ArcLight co-founder and senior partner Robb Turner, touted U.S. energy infrastructure as going through one of its most profound changes ever, noting robust growth and change in the shale plays. “The business will become a manufacturing business rather than an exploration business, and [it] will make gas production a low-cost and predictable business,” Turner said in January.
“Shale gas is going to shift even more of U.S. power production to natural gas as the commodity value will be lower and more predictable,” Turner said, as quoted by North American information service InfraAmericas.
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