More capital is set to flow in energy transition initiatives as the oil and gas industry moves toward a low-carbon future, but there is some hesitancy among private equity investors, according to Ravi Purohit, partner with Latham & Watkins.
“You’ve got a lot of money chasing not a lot of opportunities,” Purohit told Hart Energy’s Faiza Rizvi. “The appetite is there and people want to invest but they are running into a supply-demand problem.”
Further, Purohit pointed to uncertainty among investors regarding tax credits associated with renewables and new low-carbon technologies. Private equity investors are looking for good management teams to back investments in the energy transition space. For example, investors are also looking at proven carbon management technologies since a lot of them are still in infancy.
“[Investors] want to make sure that these technologies will not be outdated a year from now,” he said.
As for the uncertainty regarding the impact of policies on future investments, Purohit believes the Biden administration needs to come up with a “game plan” soon. Concrete proposals will allow private equity investors to decide whether or not they want to invest capital in the energy transition space.
“Investors, in general, like to know what is happening,” he said. “It will be incredibly helpful if the Biden administration can provide standalone tax credit or incentive to really build out the energy transition market…if they could renew some of the existing tax credits, and if they could provide additional funding for unproven technology.”
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