Key takeaways on the market landscape for merchant deals from Solar + Wind 2023
Ron Erlichman, Linklaters’ Co-Head of Energy & Infrastructure in the Americas and a partner in the firm’s Chambers Global Band 1-ranked Projects and Energy practice, moderated a panel on “The Market Landscape & Financing Environment for Merchant Deals” at the Infocast Solar + Wind Finance and Investment conference in Phoenix, Arizona on March 13, 2023. The panel focused its discussion on the current market environment for merchant solar and storage projects in the United States and the trend toward more merchant exposure in financing projects and portfolios.
The top three takeaways from the discussion can be found below:
- Merchant Market is Evolving – The willingness to finance merchant renewable and storage projects has increased over recent years. What began as a willingness to consider merchant tails in the solar market has quickly evolved into a willingness to consider financing projects with sizing attributed to some portion of merchant revenues during the term. In some unique and limited cases, this has even meant financing a fully merchant project.
- Diversification Provides Flexibility – Financing a merchant project will be more attractive to lenders when it relates to a portfolio or consists of a holdco or warehouse financing where merchant risk on a single project is mitigated, especially if the portfolio covers different energy markets, geographical locations and stage of development life cycles.
- Holistic Approach – When looking at merchant risk, lenders will want to consider all factors that may impact the ability of the project to manage merchant risk, not just the energy market or project location. This includes, but is not limited to, the sophistication and experience of the sponsor, the sponsor’s trading experience (e.g., for battery storage facilities looking to capture arbitrage), transmission issues (e.g., potential grid congestion) and barriers to entry for new and competing projects.
Linklaters is at the forefront of the market advising on the development and financing of complex, large-scale projects, highly structured transactions, and mergers and acquisitions in the energy and infrastructure sector across the globe, particularly in connection with renewable and carbon transition projects. The firm was recently recognized with the following awards: IJ Global’s North America Power Deal of the Year, IJ Global’s Climate Adaptation Award and Americas Renewable Energy ESG Award, IJ Investor’s Americas Conventional Power and Grid Infrastructure Deal of the Year Award, PFI’s Americas Hydrogen Deal of the Year Award, and IFLR Europe’s Project Finance Deal of the Year Award. Learn more about our global practice here.
