If there’s one key message we hear from our investor clients, it’s this: competition for renewable energy projects is increasing.
In recent years there has been unprecedented levels of secondary market activity in Europe. For many investors, this has meant a shift towards large portfolio acquisitions, as they pursue aggressive growth strategies and are unable to compete in smaller transactions.
The consolidation of renewable energy assets is particularly visible in the UK: eight asset owners hold more than half of the UK’s operational large-scale ground-mounted solar capacity. A similar consolidation is taking place in the wind sector, with large UK funds such as Greencoat, Octopus, Ventient and Foresight acquiring additional capacity at a rapid pace.
While Natural Power’s team of technical advisors has been involved in flagship single-project transactions over the past year, such as the financing of the 600 MW Markbygden ETT onshore wind farm in Sweden, a typical mandate increasingly consists of reviewing a large, multi-technology, multi-region portfolio.
These types of portfolios offer several advantages in comparison to single projects due to:
- Economy of scale: Portfolios may be in the 100MW+ range and include numerous smaller projects, facilitating less costly due diligence, financing, and transactional costs.
- Reduced market risk: A portfolio that encompasses multiple markets offers reduced overall risk due to changes in incentives or market rates for the supplied power in any single market.
- Reduced technology risk: Serial equipment defects or other technology issues can be mitigated by employing a mix of technologies.
- More predictable revenue streams: By having a portfolio with geographic diversity, regional weather effects (e.g. low summer wind speeds in Ireland) can be balanced by higher revenues (e.g. higher irradiance in France) such that the overall portfolio has a more consistent generation profile than any single project might under the same real- world conditions.
In this white paper, we focus on the latter two aspects, which are typically quantified as the portfolio effect or portfolio benefit. The Portfolio Benefit describes how the average generation of a diverse set of projects is more consistent, and therefore carries lower risk, than individual project generation.
Please download the full white paper here.