What we learned from conversations with power and renewables investors in 2023
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Director, Power & Renewables Consulting
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In June and July 2023, we discussed our analysis covering some transaction themes with Private Equity and Principal investors in New York.
Fill out the form at the top of the page to download your free copy of our recent whitepaper; ‘Eight things we learned from conversations with power and renewables investors in 2023’. Or, read on for a summary of three of those takeaways:
1. On the PV supply chain front, there's been a frenzy of activity in the solar manufacturing space after the IRA.
Over 60+ reshoring-related solar partnership announcements across the entire PV value chain have occurred between August 2022 and July 2023. Most investors agreed that the focus has been harvesting tax credits and securing supply over the next few years. None of the partnerships have focused on re-shoring the highest-value add segment of the solar supply chain - polysilicon (“poly”) manufacturing.
We were asked how much poly reshoring could emerge in the US. Poly is significantly more capital-intensive and complex from a manufacturing viewpoint. Long term innovation and cost leadership in the US would require vertically integrated players to establish multi-GW scale in the US, including poly.
Given the low scale of domestic wafer manufacturing and lack of vertically integrated silicon based supply in the US, developing products for export outside the US has yet to be the focus of near-term announcements.
2. US turbine suppliers show positive sentiment, with expectations of pricing reset, potential for higher PPA levels, and skepticism regarding turnaround stories amid quality concerns and warranty provisions
On the turbine OEM front, we heard some positive sentiment for the limited US-domiciled suppliers. One of the critical turnaround stories that some investors hope for relates to TPI Composites and Vestas. There is an expectation that equipment pricing will reset and the prices will stay 30% higher for a while. And this pricing would lead to higher PPA levels and retail rates.
It’s too early to tell how much pricing power the turbine supply chain will be able to exert. Several investors were cautious about believing stories of turnarounds and stated that they don’t believe in the ‘this time is different’ philosophy. Elevated warranty provisions at turbine OEMs continue to raise concerns about product quality and future impairment charges.
3. In significant M&A trends, growing platform activity is anticipated as more utilities consider divesting deregulated portfolios, with valuation challenges and ongoing analysis of transaction metrics shaping the landscape
On the large-scale M&A front, an increasing amount of platform activity is likely, and there was consensus around the idea that more utilities with regulated and deregulated business units would sell down their deregulated portfolios.
We received pushback when we commented that RWE didn’t pay an-above average premium for Consolidated Edison’s (“ConEd”) wind and solar portfolio at 13x EV/EBITDA. Several investors mentioned that the premium was hefty given the underlying project economics.
The DevCo business embedded in ConEd’s structure likely played a role in the valuation, and seemingly, so did the inherently lower WACC for EU players.
Data on pipeline valuations is always challenging to ascertain, so we’ll keep an eye on future asset deals to refine our thinking on comparable transaction metrics.
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To read five more of our key takeaways from insightful discussions with power and renewables investors, fill out the form at the top of the page to download your free copy of our full whitepaper; ‘Eight things we learned from conversations with power and renewables investors in 2023’.
You can also click here to find out more about how power and renewables investors should navigate the Inflation Reduction Act and recent power market volatility.