Renewable energy transactions are on the rise as the demand for clean, sustainable energy grows around the world. Europe in particular has seen a surge in investments into wind power as big oil and gas companies try to shift to renewables. And there is significant competition in North America for high-priority assets. Both offshore and onshore wind investments are relatively safe as far as mergers and acquisitions because demand continues to rise in emerging markets as the worldwide weaning off of fossil fuels is certainly not going to happen overnight.
The wind energy industry is still relatively young to the world. There remains plenty of opportunity for technological and design advancements, as well as how they relate to financial possibilities.
Offshore wind in particular has inherent benefits. Because it is located out at sea, the visual impacts are minimized. Also, wind tends to be stronger and more consistent at sea then it is on land. It is highly sustainable and highly predictable. Floating turbine foundations for deep-water locations are emerging and have already been successfully implemented in countries such as Norway, Japan and Portugal.
Wind and Large-Scale M&A
Wind power transactions dominate large-scale renewable mergers and acquisitions because of the sector’s economy of scale. The larger a windmill is, the more efficient it is. So, one big windmill is more efficient than two smaller windmills. This translates into large construction projects—an attribute that the industry likes to see. Large corporations with bold goals for renewable energy are buying an abundance of wind power.
Innovations in wind energy make it more affordable, setting the stage for demand and growth, especially for large corporations that need a great deal of power and are looking to save money. (Think about Amazon’s huge wind farm in Texas that has 100 turbines and can power 90,000 U.S. homes). This corporate need calls for large projects and contributes to why wind power dominates large-scale M&A.
The Role of Tax Equity Investments
The wind energy industry is also subject to tax equity investing—a very important part of financing in the sector and popular in the United States. Tax equity deals for renewable energy projects are common with private energy developers seeking to extend capital, and financial institutions wanting credits to ease their tax liability.This can make the environment more competitive.
How it works:
- A tax equity investor and a developer create a holding company that owns the project's assets. The financial institution provides capital and in return gets tax benefits and cash distributions within the first 10 years of the project’s operation.
- This allows the investor to recoup and earn on their investment.
- Once the investment is recovered and tax credits captured, the ownership structure is reversed.
- The developer is now the majority owner and can have the right to buy out the investor's remaining stake.
- Therefore, the developer built a wind project for a small part of the installed cost in exchange for relinquishing the tax credits and cash distributions to the investor.
Clean Energy M&A Expertise
Any energy M&A transaction requires a specialized level of expertise in order to avoid pitfalls that can blow a deal. Finding the right company broker is advised.
- Knowledge of the industry and the nature of the markets are key
- The ability to identify areas of risk is imperative with painstaking due diligence
- Complex regulatory issues must be firmly understood. Laws and regulations in the energy industry go beyond the energy regulatory governance to include environmental, health, safety, tax, employee benefits and property issues
- Cross-border transactions require global and local understanding of the market and the regulatory differences and how it plays into the company valuation
Ready to make a move? Schedule a consultation with one of our M&A geniuses to see how we can help you sell a company, buy a company, create growth, or conduct exit planning.
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Europe: Michael Lawrie at +44 (0) 161 359 4400 / Enquiries@BenchmarkIntl.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkCorporate.com
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