EverWind: Following the Money?

An American company named EverWind Fuels has purchased the Point Tupper “energy storage center” (read: tank farm) from San Antonio, Texas-based NuStar Energy.

EverWind paid $76.9 million for the facility (which includes the tank farm; rail-loading facilities; access to an ice-free, deep-water port; and “available electricity and fresh water”) with the intention of turning Point Tupper into “a regional green hydrogen hub, reducing carbon emissions and bringing clean energy jobs to Nova Scotia.”

As the Post (to its credit) put it, EverWind is a “self-described” developer of “green hydrogen and ammonia production, storage facilities and associated transportation assets,” a description that would imply EverWind has a track record in developing, storing and transporting green hydrogen and ammonia. But EverWind was established in November 2021, registered in the Nova Scotia Registry of Joint Stock Companies in February 2022 and, although the website references a “team” consisting of “former executives from Stonepeak, Blackstone, Emera, and Nova Scotia Power” [bites tongue, says nothing uncharitable about these fine organizations], the registry lists just one person—Trent Vichie—as both president and secretary. Point Tupper, as EverWind quite openly explains on its website, is its “inaugural project.”

Source: EverWind Fuels website.

In April, Vichie registered EW Terminals Canada Holdings, Co and EW Terminals Canada Co, after which somebody must have pointed out to him that people would would read “ew” as a synonym for “yuck,” so the companies changed their names to EverWind Terminals Canada Holdings Co and EverWind Terminals Canada Co, respectively, and yes, that’s funny.

The EverWind website says the company is a subsidiary of TDL Partners, a firm about which I can find literally no information but if I had to guess, I’d say TDL Partners is a private equity firm, because Vichie, who is Australian by birth, has spent his career in private equity.

He headed the infrastructure division at Blackstone with Mike Dorrell before they left in 2011 to found their own PE shop, Stonepeak Infrastructure Partners. When Vichie “retired” from Stonepeak (at the age of 46) Bloomberg said he retained his investments in both the firm and its funds. Stonepeak closed a $14 billion Fourth North American Infrastructure Fund in February, bringing its assets under management to an estimated $46 billion.

The suite of EverWind companies registered in Nova Scotia are all Nova Scotia Unlimited Companies (NSULC), a form of company beneficial to US investors for complicated reasons that basically boil down to helping them pay as little tax as possible (Nova Scotia law firms seem very excited about NSULCs) because in the world of private equity, taxes are for other people to pay—and you to tap into in the form of government subsidies and tax incentives. Speak of which…

The Feds

If you’re wondering why Australian-born, New York-based Vichie is suddenly interested in turning Nova Scotia into a regional green hydrogen hub, the answer can be found under the “climate” section of Canada’s 2022 federal budget:

Budget 2022 announces that the Department of Finance Canada will engage with experts to establish an investment tax credit of up to 30 per cent, focused on net-zero technologies, battery storage solutions, and clean hydrogen [emphasis mine]. The design details of the investment tax credit will be provided in the 2022 fall economic and fiscal update.

Alternatives

Private equity is considered an “alternative asset,” meaning, not one of the three, traditional, publicly traded assets—that is, stocks, bonds and cash. Mother Jones did a deep dive into PE in its May/June issue noting that, like other alternatives, PE first began heating up as an asset class after the dot.com bubble burst in 2001 and the US entered a recession:

For private equity, this proved to be a boon. Lured by promises of higher returns than they could get from sluggish bond and stock markets, pension funds began to flock to private equity firms and soon became their biggest investors. University endowments, sovereign wealth funds, and the rapacious wealthy all followed suit.

But PE really caught fire after the financial crash of 2008. As noted, the upside is higher returns (although these have been called into question, see this damning letter to the SEC by Eileen Appelbaum and Jeffrey Hooke of the Center for Economic and Policy Research) but the downside is higher risk, which is why alternatives have been the purview of rich individuals or institutions, so-called “accredited” or “sophisticated” investors. Alternatives also claim low-correlation to business cycles and regular assets, meaning when your stocks and bonds tank, your alternatives supposedly won’t, which is why investors are encouraged to use them to “diversify” their portfolios.

Infrastructure is a particular PE “strategy,” one that, according to Crystal Capital Markets, “targets assets that provide essential utilities or services” and that “generate a return through the public need of said asset.” The list of such assets includes everything from water distribution companies to airports to hospitals to schools to roads to renewable assets like wind/solar farms.

In other words, the strategy is to insert yourself between people and something vital to them (think Mad Max in The Road Warrior, “You want to get out of here, you talk to me”) and extract a steady stream of income while also charging your investors a 2% management fee and taking 20% of any profits (which you will call “carried interest” and pay capital gains tax on instead of personal income tax, thus paying less tax than your secretary).

Trent Vichie (who apparently appeared at the State of the Strait Business Update in March.)

And of course, it involves inserting yourself into a space that used to be the responsibility of governments, who would borrow money to build infrastructure. (So boring, nobody got rich.)

Infrastructure funds went from managing about $50 billion in 2009 to managing about $500 billion in 2019 despite, it turns out, failing to deliver on their promises. In a paper published in 2021, Joshua Rauh of the Stanford Graduate School of Business and co-authors Roman Kräussl and Aleksandar Andonov:

…analyzed the cash flows in and out of 633 infrastructure funds—encompassing more than 82,000 investor-deal observations. They found that the returns were not only below market rates, they were just as volatile and sensitive to business cycles as other private equity investments.

But Rauh et al found that public institutions (like pension funds) were continuing to put money into such funds despite the poor returns in order to meet their environmental, social and governance (ESG) obligations, taking on “more marginal deals in order to meet their non-financial objectives.”

Meaning, if you are private equity company with a far-fetched plan to turn Nova Scotia into a “regional green hydrogen hub” you just might be able to attract investment from public institutions that believe (or choose to believe) they are doing something good for the environment. And you can also attract support from government which wants to be seen doing things too.

Again, I don’t know exactly what approach EverWind is taking, I just know the founder is a private equity guy, the company is a subsidiary of what sounds like a private equity firm and, per the website:

Development funding for the facility has been secured along with federal support for the first phase of the project.

How far-fetched the scheme is will be the subject of Part II of this article.