Asia private equity 2025 preview: Energy transition
About USD 3.3trn, or USD 330bn a year, is needed by 2030 to deliver a green transition across the energy, mobility, built environment, and food sectors in South Asia, Southeast Asia and Africa, according to a November 2023 report from LeapFrog Investments, Temasek Holdings, and CGAP, a World Bank-affiliated research group. Investment to date has only met about 5% of this demand.
Still, there are reasons to be optimistic. In a survey last month of some 1,400 executives investing in energy transition, KPMG found that 72% believed investment was growing rapidly and that 64% had already invested in energy efficiency technologies over the past two years.
Most of the investors claimed to focus on East Asia; Europe and North America were next biggest targets. Many expressed a growing interest in Southeast Asia.
“LP interest in energy transition strategies is already very large and growing rapidly in Asia, driven by the massive opportunities in renewable energy and decarbonization,” said Ken Wong, a partner and head of Asia Pacific infrastructure at EQT.
“LPs are seeking managers who can balance sustainability goals with solid financial returns, focusing on proven technologies like distributed energy, battery storage, and recycling – solutions ready to scale without relying on government subsidies or facing major regulatory risks.”
Wong added that as Asia accelerates its renewable energy push with public and private sector commitments, “LPs are aligning with strategies that deliver returns, address risks, and support a fair transition for economies reliant on traditional energy. Appetite for these opportunities is only set to grow.”
As a case in point, Brookfield Asset Management achieved a first close of USD 2.4bn in September on its Catalytic Transition Fund, which is targeting USD 5bn for clean energy and energy transition in emerging markets.
Earlier this month, EQT launched a transition infrastructure strategy aimed at scaling clean energy businesses across North America, Europe and Asia Pacific. In January, Singapore-based Clime Capital secured a USD 127m first close for its Southeast Asia-focused clean energy fund.
The question is evolving from whether LPs will embrace energy transition to how far they’re willing to go in terms of novel strategies.
“Investors very much care about climate and energy transition, but their mindset is still unproven,” said Keiichi Suzuki, a Tokyo-based partner in Advantage Partners’ renewables and sustainability team.
“For example, hydrogen is an unproven asset class and it’s greenfield, so still in development. Strategic investors may be more incentivised to invest in hydrogen funds because they want to make a hydrogen society possible. But financial LPs may look at broader impact funds instead, given they are more financial focused.”
Broadening the scope
Several sub-segments are attracting increasing interest. Suzuki, who focuses on hard-to-abate sectors, points to green hydrogen and its derivatives, renewable energy, and batteries. He notes that in Japan, more nuclear reactors are starting to be reactivated to meet demand for clean power.
Wong said EQT is looking at themes like energy storage, distributed energy generation, energy-as-a-service models, fleet and vehicle electrification, next-generation recycling, and biofuels.
Nakul Zaveri, a partner and global co-leader for climate at LeapFrog, sees untapped potential in energy, food, built environment, and mobility, pointing out that as low-income consumers in emerging markets rise up the value chain, these sectors will become particularly impactful.
The opportunity also includes rising activity in product-as-a-service, battery-as-a-service, mobility-as-a-service and energy-as-a-service categories across Southeast Asia and India. These models break down the upfront cost for customers, helping them access otherwise unaffordable green solutions.
LeapFrog played this theme last June, when it led a USD 65m Series B round for Battery Smart, an Indian battery swapping network for electric two and three-wheelers, seeing opportunity in a company whose service is much cheaper and faster than queuing at a fuel station to refill your scooter.
The GP also sees investment potential in areas like efficient cooktops, smart farming, and energy-efficient buildings.
“There’s a gap in terms of demand versus supply. There is not only a large need but active opportunities to deploy. Until now, the use cases were not obvious to everyone, but they are getting more and more obvious and becoming front and centre of governments and companies’ minds,” Zaveri said.
“Regulations are becoming more relevant, and frameworks are being put in place by governments, so there will be value migration taking place from traditional business models to new business models.”
Innovation in vogue
Tim Koo, a venture partner at climate tech specialist Audacy Ventures, reckons 2025 will welcome the “next wave of technologies” beyond renewables. In some areas, this will include shifts from the pilot phase to commercialisation and then to exponential growth.
“There’s very little capital dedicated to some of these emerging technologies and that’s where the problem lies. They lack capital to get to a point where a PE fund can come and invest,” Koo said. “That’s where we play in at the moment – looking at emerging technologies within the energy transition space.”
Carefully navigating a fast-changing geopolitical environment will be a key challenge heading into 2025. There are concerns that a new Donald Trump administration in the US could rock the boat when it comes to environmental, social, and governance (ESG)-related investments.
However, Alexander Chan, head of ESG for Asia Pacific at Invesco, is encouraged by the industry’s long-term commitments to ESG, including LPs increasingly setting net-zero targets for 2025 or 2030 and targets for assets under management dedicated to climate or impact investment.
Many investors have laid out detailed plans on their energy transition or climate strategies and how they plan to deploy capital, while others have formed in-house sustainability teams to engage with managers and explore co-investment, he said.
This means there is greater potential for blended finance and collaboration in the coming year, including in the form of development finance institutions working with GPs specifically on energy transition and climate action.
The exit environment for infrastructure is also looking up. Anecdotally, investors see valuation gaps between buyers and sellers narrowing in trade sale situations, and while the advantage is still slightly skewed toward buyers, a balance may come in the new year.
“If we think back to 2022 and 2023, when markets were in a tougher spot, there was a noticeable shift in how deals were approached,” said EQT’s Wong.
“The idea of relying purely on a financial mindset is fading, and instead, there’s a stronger focus on value creation and operational expertise. It’s an evolution that’s likely here to stay, and it’s reshaping how firms think about exits, not just in energy transition but across the board.”