The New Green Investment: Getting Clean Energy to Big Cities

Now a group of investors is betting on a startup that builds massive transmission lines to carry renewable electricity to urban areas.

EnergyRe, launched by executives at real estate giant Related Cos., said Monday that it raised $1.2 billion from a group of European investors to build more projects across the U.S.

The deal comes as the Biden administration is pushing to modernize the national power grid, which isn’t equipped to handle the growing amounts of renewable energy that the country is hoping to produce to wean itself off fossil fuels. Already, surging electricity demand has strained the grid and led to more frequent outages in recent years.

“If we want to have reliable power, we need to have a new grid," Miguel Prado, energyRe’s chief executive and an industry veteran, said in an interview.

The high-voltage transmission lines needed to carry clean energy long distances are notoriously difficult to get permitted, in part because of fierce resistance from local residents, and have become a major obstacle for the country’s climate goals. Last year, wind- and solar-generating projects accounted for roughly 90% of power projects waiting to join electric grids, according to the Lawrence Berkeley National Laboratory.

The backlog is pushing more companies to launch transmission projects. Among them is a 175-mile underground transmission line to bring power from a cluster of upstate wind and solar projects to New York City. It is part of a roughly $11 billion collaboration that includes energyRe, a Blackstone-backed renewable developer and the state of New York.

The funding announced by energyRe on Monday will go toward such projects and is made up of $800 million in equity and $400 million in debt. The investors include Denmark-based funds Glentra Capital and PKA and the investment manager of the Novo Nordisk Foundation, the controlling shareholder of drugmaker Novo Nordisk.

Such overseas investors have been pouring money into U.S. companies to capitalize on the climate law, which included billions of dollars in clean-energy subsidies.

Other projects are springing up around the country, too. A 339-mile transmission line to carry hydropower from Quebec to New York City is being backed by Blackstone. Three proposed transmission lines from companies including Grid United, Berkshire Hathaway and National Grid recently got a $1.3 billion commitment from the Energy Department.

EnergyRe is applying for similar government funding and said it is giving priority to projects it thinks can avoid permitting snarls. Its New York transmission line, for example, spans land controlled by the state. Another 350-mile transmission line to carry power from Iowa to the Chicago area will be built along railroad tracks.

Still, energyRe will have to contend with the higher interest rates and costs that have hit other clean-energy businesses this year. The company, which is also developing an offshore wind project near New York and New Jersey, said tax credits from the climate law should help absorb expenses.

The startup was created in 2020 with initial backing from executives at Related, who saw the need for clean power in cities to comply with local regulations and meet demand from big companies.

Founded by Miami Dolphins owner Stephen Ross, Related is a developer of splashy properties such as New York’s Hudson Yards as well as condos and affordable housing. The company took advantage of low-income housing tax credits for years before new clean-energy credits and transmission-funding programs were created.

“It is such an evident problem and huge opportunity," said Jeff Blau, Related’s CEO and chairman of energyRe.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com