The Interview

How has the investment landscape for energy infrastructure developed in recent years?

The energy markets are in a period of transition as regulations change, such as the renewable portfolio standards and environmental standards, and new technologies emerge.

I previously mentioned the

shift from coal to natural gas, which is primarily the result of market forces including the exploitation of shale gas, but also the implementation of new environmental regulation. Likewise, the growth in renewable energy power projects has been driven by a combination of the drop in the cost of renewable energy, technological improvements resulting in higher capacity factors and the implementation of renewable energy portfolio standards and federal tax law. We apply deep industry experience to capitalize on market disruption and opportunities generated by these changes. Starwood Energy’s approach to underwriting an investment includes a consideration of the project risk profile and conformity to our investment philosophy.

The market environment changes frequently, so we must stay current and flexible regarding the changing investment opportunities. For example, in 2009-2010 we found utility-scale solar to be very interesting, but now competition for these opportunities has resulted in greater market efficiency and lower returns. More recently, we have found wind power projects to be an attractive investment because a large number of projects were developed upon the change of tax law in mid-2012, and European investors are rebalancing their portfolios. We typically collaborate with highly experienced developers on greenfield projects, despite having those capabilities in-house.

This frees up

our team’s resources to better focus on our overall portfolio.

You recently closed your second energy infrastructure fund; what more can you tell us about this?

SEIF II closed in December 2013 with total capital

commitments of $983 million, above its target of $750 million and at our hard cap. Many of our first fund investors recommitted to the second fund based on our track record. We broadened our investor base with commitments from pension plans and sovereign wealth funds in Asia, the Middle East and Australia. We also found robust interest from European and American insurance companies, including those experts in energy infrastructure investing.

What are your plans for this fund?

Our approach to the market has been yielding excellent results, so we intend to continue what we are doing and focus on value-add opportunities in power generation and transmission, with the ultimate goal of creating well-structured investments with contracted cash flow and predictable yield. While we do not have allocation targets, approximately 40% of our first fund was invested in renewable energy generation, 35% in natural gas fired generation and the remaining 25% in power transmission projects. Based on our current pipeline, we do not predict a significant change with the new fund, but market opportunity will ultimately determine where we end up.

What is in store for Starwood Energy in the near future?

Both the short-term and long-term fundamentals of the North American energy markets offer compelling opportunities for investment. The continued growth in

opportunities to secure long-term revenue contracts that support well-structured investments with recurring dividends. One way of describing what we do is we create energy infrastructure projects well- suited to the investment objectives of ‘core’ investors including pension plans, insurance companies, and public yield-oriented investment vehicles.

Is there anything else you would like to add? Starwood Energy works

with investment-grade

engineering, procurement and construction contractors that provide liquidated damages for delays or performance shortfalls. This provides a safeguard for investors on the off-chance things do not go according to plan during construction. Starwood Energy has never, to date, had any adverse effect on its economics from construction. The projects have been on time and either on budget or under budget.

We have a highly experienced team with the unique expertise required to successfully navigate the regulatory, technological and economic complexities of the power generation and transmission market. This allows us to fulfill our goal of being flexible in moving back and forth between opportunities, depending on which are offering the most interesting risk-adjusted premiums. Through discipline and care, we have proven the availability to capture very attractive risk-adjusted returns for our investors.

electricity demand, coupled with increasingly stringent environmental regulations, the retirement of conventional coal-fired generation capacity, and demand for additional power generation facilities and high-voltage transmission capacity provide significant investment opportunities in the sector. We expect to keep a close watch over the technological feasibility of shifting power delivery from the centralized model we have built over the last century to a more distributed model. But, in the end, we will be focusing on

Having invested across a variety of energy subsectors since launching almost a decade ago, Starwood Energy has shown a remarkable ability to adapt its strategy to benefit from a growing and changing market.

Contact: www.starwoodenergygroup.com

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