Offshore wind is clearly driving the renewable energy sector across the UK, with investment in renewable energy more than doubling from £3.1 billion to a record £6.6 billion in 2016, according to the latest Renewable Energy Finance Report*.
Offshore wind represents the bulk of the investment value, with investors attracted to already committed funding consortia as projects hit important development milestones. This resulted in offshore wind M&A activity worth £3.4 billion last year, a marked rise on the £384 million recorded in 2015.
Banks also invested a record £12.7 billion of project finance in offshore wind, up from £6.1 billion in 2015.
Despite political pressures, onshore wind powered ahead in M&A terms, with activity reaching £1.2 billion in 2016, double the £609 million recorded in 2015. The number of transacted deals recorded also increased from 23 in 2015 to 30 in 2016.
Maria Connolly, Head of Energy & Renewables at TLT – the law firm which operates from offices in Glasgow, Edinburgh and London – which compiled the report with industry analysts Clean Energy Pipeline* commented:
“An active secondary M&A market boosted interest in onshore wind as large scale operational sites reached the end of their four to five year investment cycle. With a number of sites that were expected to come to market in 2016 delayed and a high first quarter figure for onshore wind M&A activity at £689 million, we expect M&A activity to remain high in 2017.
“Last year saw a much-anticipated dip in project finance activity around solar power, as the Government subsidy regime drew to a close. There was a decrease from the record £5 billion in 2015 to just over £1 billion in 2016.
“In contrast, there was only a small fluctuation in M&A activity with the value of solar deals recorded declining from £1.7 billion in 2015 to £1.5 billion in 2016. The solar market will likely plateau in 2017 as the number of new projects dwindles.
“But as a mature technology, commissioned solar is still seen as a secure investment with substantial investor interest and capital chasing a diminishing number of commissioned portfolios.
“This means more interest in smaller deals. It also means increased competition amongst funds, consolidation and a likely rise in the deal value of each individual transaction.”
TLT said M&A activity across the renewables sector will likely remain strong in 2017, with £2.9 billion already recorded for quarter one. Although investment funds and yield cos are likely to prefer large commissioned portfolios, high demand will force interest in smaller ventures and less traditional technologies – like energy storage.
Connolly added: “The data for 2016 clearly shows a strong, robust sector adapting to a subsidy-free era. Renewables projects are a good source of long-term and stable returns for investors and funders.
“Scale and maturity will continue to make renewables attractive to both finance and re-finance as the secondary market expands.
“Energy storage is widely heralded as the technology that will change the face of the sector; and projects are already attracting considerable investment interest. But, the key to making energy storage attractive are demonstrable revenue streams.
“Biomass and offshore wind will also play a critical role in moving the UK towards a future where a large percentage of the energy consumed comes from renewable sources.”