After a year of muted dealmaking in 2023, last month was a showcase month for pent-up capital finding a home, particularly in the energy transition sector.
At the outset of the month was the $6.2 billion buy of US utility Allete by Global Infrastructure Partners and CPP Investments. Then came EQT’s SKr16.4 billion ($1.5 billion; €1.4 billion) agreement to buy Swedish developer OX2, while last week saw ECP agree a $2.6 billion deal for Atlantica Sustainable Infrastructure and Brookfield Asset Management added to GIP and CPP’s mega-deal with the move to buy French developer Neoen, providing the company with a valuation of €6.1 billion.
The deals in this quartet were all take-privates and will, the buyers might stress, provide a capital security to the energy transition that the public markets can’t offer, a theme we explored a few weeks ago.
Particularly in the case of the latter three deals, a trend is emerging. Ignacio Paz-Ares Aldanondo, managing partner in Brookfield’s Renewable Power & Transition Group, told Infrastructure Investor last week following the Neoen deal that the company was “at an inflection point” in terms of its capital needs and growth. But the point may well pertain to the wider renewables development industry, which has seen a flight to deeper pockets amid the rise of interest rates.
Indeed, as Brookfield’s senior vice-president Esper Nemi said in Brookfield Renewable’s Q1 earnings call last month: “Renewable power developers and operators who were not prepared for a higher interest rate environment or are unable to manage through supply chain challenges have seen their business models disrupted. This has created an opportunity to invest for value. With our business, which remains insulated from such headwinds, we are ideally situated at the clean energy centre between capital and opportunities.”
Nemi added: “Our access to scale capital means we can execute on large opportunities where there are few viable partners and risk-adjusted returns can therefore be very attractive. Larger companies can also attract stronger management teams and have embedded growth opportunities, which when combined with our capital and capabilities, can allow us to unlock additional value creation that others cannot.”
EQT might well consider themselves in a similar bucket when it comes to OX2 and its stated 34GW pipeline.
As we explored in our December/January cover story around renewables development, the headwinds suffered by some over the last 12-18 months may well be turning into tailwinds. Offtakers, for example, would now “rather deal with a larger player than struggle with someone who will make a commitment for a low price then walk away from it”, according to Jehangir Vevaina, Paz-Ares Aldanondo’s fellow Brookfield managing partner.
OX2 chief executive Paul Stormoen said in his company’s Q1 earnings call a few weeks before the EQT deal was announced that “the financial investors are very much back in the game”.
That certainly rings true – depending on the AUM figure.
ICYMI
Here’s a wrap-up of energy transition infrastructure developments in May that caught our eye, but didn’t make the cut for coverage:
- Nuveen Infrastructure (formerly known as Glennmont Partners) shares the German 253MW Gode Wind 3 offshore wind farm with Orsted, and this project now has its first 11MW turbines installed – the largest yet in German waters. The UK already has 13MW turbines spinning at the 1.2GW Doggerbank A, in which HiTechVision has a ten percent share.
- Keeping to the theme of offshore wind, a pilot floating wind turbine, the Stiesdal TetraSpar Demonstrator, reportedly averaged a capacity factor of 63 percent so far in 2024. This with a mere 3.6MW turbine. The spar foundation can reportedly be deployed from a shallow-water port, which would be rather useful.