Green Energy Reporter

We recently talked to Russell Stidolph, founder and Managing Director of AltEnergy, a clean energy-focused private equity fund with $110 million of committed investment capital. The fund is based in Rowayton, Conn. and invests across the clean energy spectrum – in wind and solar generation, biofuels, as well as smart grid and transmission projects. In October, one of AltEnergy’s portfolio companies, Tres Amigas, officially launched a grid interconnection project in New Mexico, a $600 million grid initiative that, once operational in 2014, will connect the U.S.’ three grid systems. Stidolph, a graduate of Dartmouth College, is a veteran clean energy investor. Before founding AltEnergy in 2006, he worked at PE firm J.H. Whitney & Co., where in 2001 he was instrumental in launching the firm’s clean energy practice. This interview is part of our ongoing Cornerstone Conversations series with leading executives of the clean tech sector.

GER: Last month AltEnergy’s portfolio company, Tres Amigas LLC, launched a major grid infrastructure project in New Mexico.  Can you tell us more about it?

Russell Stidolph: Tres Amigas will for the fist time connect the country’s three grid systems (ERCOT of Texas; the Western and Eastern Interconnections). This means that a wind farm in West Texas will be able to export power to the East Coast or West Coast by going through the Tres Amigas interconnect, which will then pipe that electricity into one of the country’s three grid systems. Tres Amigas will open new power markets that are now off limit because of the way the U.S. grid is set up.

GER: The growing consensus on the state of the U.S. grid is that it’s outdated and in need of a serious upgrade. What’s your assessment?

RS: Over the past few years a lot of the clean energy investments have flowed into the generation side of the clean energy equations. There’s been a lot of focus on adding new wind or solar capacity and that will continue with the Obama administration’s stimulus funds. Yet, despite growing awareness about the need to build more transmission and to modernize the U.S. grid system, it does seem sometimes that the grid is the ‘forgotten child’ of the clean energy sector. The reality is that unless we start expanding and modernizing the grid, at one point we’re going to hit a wall and we won’t be able to add capacity. Specific to green energy, an expanded grid would connect wind or solar farms, which are often developed in remote areas, to high demand power markets.

It does seem sometimes that the grid is the ‘forgotten child’ of the clean energy sector.

GER: Tres Amigas is a first of its kind project, at least in the U.S. Will project finance banks understand it? Are you confident you’ll be able to fund it?

RS: We’ve been talking to banks for a while now and yes they understand our revenue model. As I said earlier, what we’re building is a bridge that connects power markets that now operate independently of each other. We are providing a missing link and electric utilities will pay a fee to Tres Amigas to use that link via long-term agreements so that their power crosses the interconnect and is sold into a new market. This is not a new model, we’re not reinventing the wheel and Wall Street and investors in general understand that revenue model and how these types of contracts operate.

Related stories:

American Superconductor to Provide Hardware for Tres Amigas Project (Oct. 13)

Details Emerge on Tres Amigas Financing (Oct. 16)

GER: Give us your assessment on the Obama administration’s energy policies?

RS: We won’t see the benefits of these policies for a long time, especially when it comes to grid investments. There’s definitely some momentum out of Washington to revamp the grid and an understanding that it will require large investments. Specific to the grid, there is an obvious parallel with the Federal-Aid Highway Act of the late 1950’s. This was a massive, government program, that was hotly debated in its day but today, as we speak, we’re still reaping dividends from this project.

GER: Do you need to be an energy expert to be an effective clean energy private equity investor?

RS: I think good investors can invest across different industries. Early stage investments in the clean energy sector are not just for energy experts. Now, it’s true that I’ve been involved in clean energy investments for nearly a decade so, yes, obviously that’s given me a good knowledge of the industry and it might have given me a leg-up when assessing an investment opportunity.

GER: Back to Tres Amigas, do you have an exit strategy or or are you a long-term investor?

RS: We’re a long-term investor. Maybe, three or five years down the line we won’t be averse to exiting the project. But right now we’re focused on building it. Tres Amigas will not begin commercial operation until 2014; so from where we stand it’s hard to even think about an exit strategy.