With increasing capital commitments, we are now moving to minority investments and emerging technology sub-sectors. pv magazine evaluated M&A prospects offered by CohnReznick Capital and FTI Consulting.
CohnReznick Capital Markets shared that the U.S. renewable energy market is expected to be defined by 2023 due to the tremendous momentum of recent U.S. policy changes coupled with uncertainty from global market upheavals.
With the International Energy Agency expecting 2,400 GW of renewable energy to come online by 2027, the world will add as much renewable energy capacity in the next five years as it has in the past two decades. This market development creates the opportunity for significant mergers and acquisitions (M&A), and the profile of this activity is expected to change.
During 2020 and 2021, renewable energy M&As exploded as platform valuations, which included project portfolios and the business development teams managing them, reached an all-time high. Now, with increasing capital utilization rates, there has been a shift from M&A of majority platforms to transactions where investors can take a minority stake.
“Investors provide growth capital in the form of a minority stake and often receive preferred equity in a company that has the potential to grow and expand in a post-IRA world where the company’s value can increase significantly over the next few years.” said CohnReznick in the white paper.
There is a growing trend for international players to acquire experienced US developers with a strong project portfolio, and CohnReznick said he expects the trend to continue in 2023. International independent power producers and infrastructure funds see the acquisition as an effective tool to participate in or expand their presence in the growing North American market. Acquisitions that include developer experience and a portfolio of projects offer scale and transactional efficiencies that individual project acquisitions cannot match.
Now that the investment tax credit (ITC) and production tax credit have been extended to projects that begin construction before 2034, CohnReznick said independent power producers and infrastructure funds are looking to tap into a much larger project pipeline through procurement.
As ITC now includes energy storage, this category is also expected to increase M&A. Mercom Capital reports that there were 23 energy storage acquisitions in the first three quarters of 2022, up from 15 in 2021, and the trend is expected to continue as the energy storage market matures.
FTI Consulting said in a press release that the significant M&As of 2022 included Brookfield Renewable’s pair of purchases of Scout Clean Energy ($1 billion) and Standard Solar ($540 million), Enbridge’s ownership of Texas wind power developer Tri Global Energy for $270 million, and the purchase of a German energy producer. RWE AG acquired Con Edison’s Clean Energy Businesses for $6.8 billion.
Photo: FTC Consulting
FTC Consulting said renewable energy investors not only continued to move up the value chain in search of financial returns, but also branched out into new subsectors such as renewable natural gas (RNG), alternative fuels and independent storage. In particular, the number of RNG transactions more than doubled in 2022, led by events such as BP acquiring Archaea Energy for $4.1 billion.
FTC Consulting said trade flows are expected to remain strong in 2023, but creative solutions and investor flexibility are needed as the market navigates ongoing supply chain challenges, long interconnection queues and high inflation, all of which are putting downward pressure on asset sales. .
To meet these challenges, investors are expected to look for contracts at the right price and move towards emerging technologies and sub-sectors to get smooth risk-adjusted returns. FTC Consulting said companies may consider selling non-core assets as a way to free up cash flow for more strategic investments or other operational factors.
The report said it could take four to six months to issue guidance on certain aspects of the Inflation Reduction Act, and developers and property owners need time to assess the relative value of their investments and deploy financial institutions to get the most out of them. IRA incentives.
“We patiently await strong M&A activity in traditional renewable assets, platforms and new technologies towards the second half of 2023 and into 2024 as clarity and increased value creation is achieved,” the release said.
