Episode 60

Jack Paris on investing in the energy transition

Jack Paris, head of Americas at InfraRed Capital Partners, discusses the growing trend towards investing in renewable infrastructure.

Steve Peacher: Hi everybody thanks for tuning in to this episode of “Three in Five,” it’s Steve Peacher SLC and today I’ve got Jack Paris with me, who has recently joined InfraRed as head of America's. Jack thanks for taking a few moments today.

Jack Paris: Steve, thanks for having me.

Steve Peacher: So we want to talk about the energy transition, renewable energy. And the term energy transition is often used in the marketplace when people think about, you know, moving toward renewable energy sources, but it has different meanings to different people so and I know infrared of course has a has a strategy that is based on the energy transition, it has a long term focus to your focus, so it could you just comment on, you know, when you think of energy transition, what does that mean and why and why do we feel like the strategy that InfraRed is overseeing is a good way to approach investing in the energy transition?

Jack Paris: Sure, I think we I think we have a very interesting strategy, it's underpinned by ESG friendly hard assets that produce stable long term cash flows that we think in the current environment with a fair amount of volatility is very interesting. So a central tenet of the energy transition is the production of clean, carbon free electricity. That's kind of central to the whole energy transition. And, as a result, one of the really big capital deployment opportunities within the energy transition is the build out of renewable energy assets. Renewable energy assets, such as wind, solar and hydro, tend to have very long asset lives, you know 35 years plus, in the case of hydro assets in excess of that as well. As I mentioned they're also characterized generally by producing fairly stable and recurring cash flows. In Europe, where the market for renewables is a little bit more advanced, we implemented a fairly interesting investment strategy around renewables, basically where we matched the duration of capital investment with the underlying asset life. And the reception to that approach has been extremely successful. So, in effect, what we're trying to do here in North America really is to replicate that same business model in North America because the market here, candidly, is a little further behind, it's not quite as developed. The European market for renewables is much more mature, so we believe that the growth prospects for that same strategy are very attractive here.

Steve Peacher: So, obviously renewables has been a big growth area, there are a lot of factors presumably behind that, but from your perspective, what are the biggest drivers driving growth in renewable energy infrastructure?

Jack Paris: Well, as you mentioned there's there are a number of drivers, but I would say clearly the growing social imperative to address climate change and to decarbonize our economy is amongst the biggest. The electric generation sector in the U.S. accounts for 27% of total greenhouse gas emissions, that's currently second only to the transportation sector, which stands at 28%. So they're basically the same size but, obviously one key way to decarbonize would be to change the way we produce electricity. In the U.S. today, approximately 61% of electrical generation is still produced from fossil fuel energy, so we think you know there's a real big opportunity to transition and deploy in capital the space. The other another key factor is the fact that there's been a declining cost curve around renewables, which is a real tailwind for the business. So prior to the recent run up in commodity prices, you know, related to the Ukraine Ukrainian war, renewables basically produced energy at level of cost of energy comparable to fossil fuels and comparable to natural gas. Post the run up in commodity prices the attractiveness of renewables is even greater. And then finally I’d say I think we're all becoming even more sensitive about energy independence and obviously renewables are domestically produced so it gets us on a path towards energy independence as well.

Steve Peacher: I want to ask about the renewables in the current market environment, so obviously we've seen a lot of volatility, we've seen rates move up, we've seen equities moved down and have increased, cost of capital is going up for projects. So how is all of that hitting impacting the renewable energy space?

Jack Paris: I think the opportunity set, notwithstanding some of those challenges, is still very, very attractive. For one, the demand for electricity is fairly inelastic you know, we obviously use it to heat and cool our homes, we use it to power our electronics and this provides a baseline of consumption that's fairly stable. However the new sources of demand, such as the transportation sector where increasingly we're looking to power our vehicles from electricity. So these movements to electrify our economy are actually growth catalysts for the renewal sector. Secondly, as I mentioned previously, the you know, the fact that we're seeing a real, pretty meaningful rise in underlying commodity prices. That, I think again bodes well for the future of renewables. From an investor, you know standpoint, or from a capital allocation of capital deployment perspective, renewables you know tend to produce because they're long life and their revenue streams are fairly well known. They produce stable and recurring cash flows, which I think in volatile environments tend to become more valuable. So look to be clear, there are clearly some challenges, you know, there might be some headwinds on the economic growth front with a potential recession, as you mentioned, higher financing costs and supply chain constraints, but, but this was a long-term strategy, and I think the ability to manage through this over the long term will be manageable for us.

Steve Peacher: Well, it certainly seems like this is a megatrend and that it will be impacted by, in the short term, but this is this is here to stay. There's just too many imperatives to get, to increase the infrastructure of renewable energies in the in North America and around the world. So, thank you for all those comments, let me end as we always do with a question on the personal front, I know from your often on the road either looking for new investments, talking to investors, etc., so outside of work how does, how does Jack Paris unwind?

Jack Paris: Well I’m a big hockey guy, I grew up in Toronto and I, you know, played competitive hockey most of my youth. I try to relive my youth every Saturday morning, I do a 6:45am skate with a bunch of guys in New Jersey and occasionally I jump on the bench and coach the girls, too so it's what I do to get my mind off the things.

Steve Peacher: Yea, well be careful out there, you know you're not a spring chicken, so you know we got to make sure you're healthy so. Well listen, thank you Jack for taking the time to talk about this, and thanks to everybody for dialing into this episode of “Three in Five.”

 

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