It's a seller's market for solar-energy projects
If you think buying a home in this red-hot market is a challenge, try investing in solar energy development.
Why it matters: Major funders from private equity to major asset managers are offering outsize premiums, unleashing unprecedented competition for solar energy projects.
- "There’s so much competition for projects that they’re getting snapped up at earlier stages — which may have been considered too risky a few years ago," Marlene Motyka, U.S. renewable energy leader for Deloitte, tells Axios.
What's happening: Industry insiders say the huge influx of capital into climate tech has forced investors and development platforms to put more on the table, exposing developers to greater risk.
- At a recent solar and wind energy conference, instead of the usual untucked button-downs and flannel, "I was elbowing my way through a sea of blue blazers," says Anthony Sibilia, who leads the acquisition team at solar development platform Primergy.
- Solar developers that had traditionally flipped projects are instead holding onto them with the help of funding from private equity and asset managers, among others.
- "All these PEs are now raising infrastructure-focused funds, climate-focused funds, core-plus-income funds that are putting this money into a renewable investment instead of a bond, because you can get better-than-bond returns at potentially similar risk levels," Sibilia says.
- That has companies that had made it their business model to buy projects from developers increasingly investing in in-house "greenfield teams" to build their own solar energy projects from scratch.
Driving the news: Solar developments offer investors considerable and steady returns, especially with developers that have a solid track record.
- Ares Management bought a majority stake in Apex Clean Energy in November; AES in December acquired Community Energy; and Brookfield Renewable Partners in January acquired Urban Grid.
- "Buyers are putting value on having the processes in place: a replicable business model with a team that can execute," Sibilia tells Axios.
By the numbers: In Q1 alone, transactions involving projects at the earliest stage of development was more than double the megawatts (MW) for the entirety of 2020, according to data from Wood Mackenzie.
- Deals in this "planned" stage of development amounted to 14,340 MW in Q1, compared to 7,660 MW in all of 2020.
Yes, and: Deals in general are getting larger and less frequent. The average deal size last year doubled to 455 MW from 198 MW in 2020.
- Meanwhile, the number of transactions dropped by about a third, to 61 in 2021 from 92 the year before.
Reality check: Industry analysts say that concerns about the impact of existing solar tariffs, and the alleged chilling effect of the anti-dumping petition that the Commerce Department accepted earlier this year, have not gone away.
- "There is high demand, but there may be sharply lower supply, which could force new (and existing) industry participants to reconsider whether it is worth the effort in the short term to continue targeting solar where there isn't already a procured supply of panels," Chris LeWand, who leads the renewables and utilities practice at FTI Consulting, tells Axios.