Fund managers to dominate ‘robust’ renewable sector

Private equity and infrastructure funds are set to defy the M&A downturn and regulatory worries by leading the charge into renewable energy investment over the coming years. A survey finds 92% of renewable industry professionals expecting funds to be the main buyers and investors in the sector.

The role of private equity and infrastructure funds in buying and investing in renewable energy assets is expected to increase significantly. A new survey of industry professionals from KPMG found 92 percent of those canvassed expecting such funds to be the most active buyers and investors over the next 18 months – up from 64 percent when the same survey was carried out a year ago.

Private equity and infrastructure funds have now moved ahead of utility companies in the survey, which have historically been the most active buyers of renewable energy assets.

The Green Power: 2012 survey found that 85 percent of respondents expected renewable energy deal flow to remain “robust” over the next five years. More than 70 percent cited a particular attraction to hydro power, onshore wind and solar photovoltaic investments, which are seen as safe havens for long-term money.

This confidence is in the face of tough conditions in the debt markets, with 70 percent saying it was now harder to secure debt financing for renewable projects and companies. Significantly in this climate, a bias to smaller deals is anticipated. Almost two-thirds of respondents said they were more confident in seeing an increase in deals worth less than $500 million, while 28 percent were more confident of an increase in deals worth more than $500 million.

The upbeat tone struck by the survey is in contrast to recent experience. Although KPMG research found 2011 to be a “vintage year” for renewable M&A with a more than doubling of deal value compared with the previous year, the last three months of 2011 saw a 39 percent decline on the previous quarter as the market appeared to cool.

There are also concerns about regulatory uncertainty in the US and the risk of retroactive tariff cuts in Europe, such as those enacted in Spain in 2010. Of those who said that renewable assets had become attractive on the basis of their risk/return profile, 76 percent admitted that the risk of tariff cuts would affect confidence in the sector as a whole.

In terms of where buyers and investors are likely to come from, the message from the survey is to look to Asia. Five of the top ten sources of capital are in the Asian region, with investment from Japan driven by low interest rates and from China driven by equipment manufacturers seeking to expand into new markets.

The US is cited as the top destination for investment by 46 percent of those canvassed, followed by India in second and China and Germany in joint third.

The survey obtained the views of 500 senior executives from utilities, manufacturers of renewable equipment, governments and sovereign wealth funds and others between February and April 2012.