Key Takeaways: Managing Obstacles and Finding Solutions for Financeable Renewable Development
Ron Erlichman, Linklaters’ Co-Head of Energy & Infrastructure in the Americas and a partner in the firm’s Chambers Global Band 1-ranked energy and infrastructure practice, moderated a panel on financing renewable development at the Projects & Money conference in New Orleans on January 18, 2024. The panel discussed how there was some softness in the M&A renewable development market along with some innovative tax equity and institutional debt transactions, while predicting a more active market in 2024 as a result of greater familiarity with the application of certain aspects of the IRA, stabilizing interest rates and a resolution to certain supply chain issues.
The top three takeaways from the discussion can be found below.
- M&A in Renewable Development. In 2023, the renewable energy M&A market became more cautious, largely due to interest rate hikes and ongoing supply chain pressures. This resulted in a fairly large “bid-ask” spread in regard to the valuation of renewable energy platforms. This highlighted the fact that investors did not view all pipelines and platforms as being equal. M&A activity in 2023 favored specific assets with a solid management team, demonstrating the importance of execution capability and project management processes.
- Financing in Renewable Development. The tax equity market increased substantially in 2023, and a surprising amount of this increase came in the form of tax credit transfer deals, with lenders showing more willingness to bridge to tax credit transfer deals for certain transactions. The market also saw innovative structured finance and monetization transactions, such as the first-of-its-kind PTC tax credit transfer transaction entered into by Invenergy, described by panel member Meghan Schultz, Executive Vice President and CFO at Invenergy, as well as the first-of-its-kind private placement transaction entered into by Nautilis Solar Energy, described by panel member Camelia Miu, CFO at Nautilus.
- Outlook for 2024: Promising but with Challenges. There are already signs that the market will be more active in 2024 as a result of gaining more clarity and a higher degree of comfort with the application of certain aspects of the IRA. This will be further bolstered by the fact that interest rates have stabilized and most, but not all, supply chain issues have been resolved. The need to address gaps in the capital structure of development projects and platforms is likely to create opportunities as sellers are forced to adjust their valuation down. This may drive interest in alternative non-dilutive financing solutions, such as preferred equity or subordinated debt, to bridge these gaps.
Linklaters is at the forefront of the market advising on the development and financing of complex, large-scale energy and infrastructure projects, as well as mergers and acquisitions of these projects and companies in the energy and infrastructure sector across the globe, particularly in connection with renewable energy and decarbonization. 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 and LatAm Oil and Gas Acquisition 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.
